Investment Highlights

• We maintain HOLD on Axiata Group (Axiata) with a higher SOP-based fair value (FV) of RM3.00/share (from RM2.90/share previously) due to rolling forward EV/EBITDA valuation targets to FY24F for Robi, Smart, Link Net and edotco. The revised SOP now implies FY24F EV/EBITDA of 6.3x - at parity to the 5-year median. We have a neutral 3- star ESG rating for Axiata.

• Axiata’s 1QFY24 core net profit (CNP) of RM149mil (excluding RM115mil forex loss, hedging cost, XL gain on disposal, impairment of assets and PPA amortisation) was within our expectations and consensus. Hence, we make no changes to our forecast.

• Axiata’s 1QFY24 CNP soared 3.9x to RM149mil from RM38mil in 1QFY23. The group’s EBITDA surged by 50% YoY to RM820mil in 1QFY24 as OpCos’ robust performance offset the increase in net finance cost (+66%).

• Revenue soared double-digit (+13% YoY) to RM5.7bil in 1QFY24 from RM5bil in 1QFY23, driven by XL (+12% YoY) and Robi (+7% YoY). The robust growth for XL and Robi was fueled by ARPU uplifts and cost optimisation measures. Additionally, edotco’s topline rose 7%, supported by higher co-location revenue.

• On QoQ basis, 1QFY24 CNP declined by 7%, dragged by higher interest expense (2.3x) due to Dialog’s USD debt refinancing and Link Net’s home fibre rollout.

• Annualised net debt/EBITDA improved to 3x (from 3.4x in FY23) due to a US$100mil debt prepayment in March and EBITDA growth of 25% QoQ.

• Management maintains a mid-single digit revenue growth for FY24F but reduced the guidance for EBIT growth to mid- single digit from high single-digit. Management expects a capex of RM6.1bil for FY24F vs. RM5bil in FY23.

• Looking forward, we are cautious on Axiata’s prospects. The group may be affected by:
  
  i) potentially large spectrum investments in Indonesia and Bangladesh,
  
  ii) digital banking losses, and
  
  iii) higher interest expense arising from additional debt financing for Link Net’s fibre rollout.

• We believe that Axiata is fair valued as it is currently trading at a 6.0x EV/EBITDA, parity to its 5-year historical mean. We will come back with a follow-up report post-briefing.

Source: AmInvest Research - 30 May 2024