Axiata Group (Axiata) reported a headline net profit RM951.4m for 3QFY24, compared to only RM14.7m in 3QFY23. This was mainly lifted by the recognition of foreign exchange (forex) gain as well as gain on early redemption of debt. Stripping out non-operating items, 3QFY24 normalised net profit stood at RM228.1m, tripling from RM75.8m. Cumulative 9MFY24 results is above expectations at 80-85% of full-year forecasts, which we attribute to higher-than-expected contribution from edotco. Nevertheless, we retain our FY24-26F earnings forecasts as depreciation charges could increase in the final quarter. We maintain our Neutral call on Axiata.

• 3QFY24 revenue was down 5.3% YoY. Indonesia, which accounted for 43% of group's revenue, posted a 6.3% YoY decline due to the depreciation of the Rupiah against Ringgit. Its second-largest revenue contributor (17% of total revenue), Bangladesh, also registered a drop of 14.2% YoY following the shutdown of internet due to socio-political issues in July 2024. This impact was partly offset by higher revenue contribution from Cambodia, Sri Lanka and the Digital business.
• 3QFY24 normalised net profit tripled. Headline net profit surged to RM951.4m but this was largely due to forex gain of RM573m and gain on early redemption of debt of RM306m in 3QFY24. Stripping out non-operating items, normalised net profit increased from RM75.8m in 3QFY23 to RM228.1m, mainly on stronger contribution from edotco (lifted by lower depreciation charges as a result of an extension of the useful life of towers), lower losses from Others and higher contribution from associates. Meanwhile, net debt/EBITDA continued to trend downward from 2.88x to 2.59x, supported by reduction in borrowings and leases.
• Outlook. Given a complex business structure with various operating units in frontier markets, the group is constantly caught up with corporate exercises to manage risk and re-create value. Axiata has signed a non-binding MoU to explore a proposed merger of XL Axiata with the fourth-largest mobile player in Indonesia, Smartfren. Although the merger could solidify XL Axiata's position, it is not likely to unseat the second-largest player in Indonesia. Hence, we do not expect any material financial impact arising from this proposed merger, a deal that may conclude by the end of this year. .

Source: PublicInvest Research - 29 Nov 2024