Axiata Group (Axiata) reported a headline net profit of RM48.5m in 4QFY23 compared to a loss of RM1,422m in 4QFY22 as a result of impairments in Indonesia and Sri Lanka. However, the group continued to recognise impairment in other operating units in 4QFY23, mainly coming from its tower operations in Myanmar and Pakistan amounting to a total sum of RM928.4m. The group announced its intention to exit Myanmar and the sale of edotco Myanmar is highly probable, resulting in its financial results be presented as discontinuing operations. After adjusting for these impairments and other non- operating items, Axiata’s normalised net profit for FY23 stood at RM542.2m. Although the results came in above our and consensus estimates of RM372m and RM428m respectively, we cut our FY24-25F forecasts by an average of 14% as we strip out Ncell from our forecast following its disposal in December 2023 as well as higher interest cost. Our SOTP-based TP remains unchanged at RM2.00 as Ncell only accounted for <3% of our total valuation. Maintain Underperform.

• FY23 revenue rose 10% YoY, mainly contributed by higher revenue from all operating units except its digital business. Indonesia and Bangladesh remained the two largest contributor, accounting for 44% and 19% of group’s revenue respectively. Indonesia’s revenue increased by 12% due to higher prepaid data revenue, growth in digital advertising business and higher managed service revenue while Bangladesh posted a 4% growth due to higher data and voice revenue.
• Headline net loss of RM125.2m for FY23. Axiata suffered a headline net loss mainly due to impairment of goodwill. In FY23, it recorded an impairment of assets in Nepal amounting to RM1,505.6m, write-off of capital gain tax of RM396m in relation to Ncell as well as a net loss on disposal of RM356.4m. In addition, its intention to exit Myanmar has resulted in a RM887.9m of goodwill impairment.
• Outlook. Given a complex structure with various operating units in frontier markets, the group is constantly caught up with corporate exercises. After its surprised announcement of Ncell disposal in late 2023, talks about potential sale of its newly acquired fibre business in Indonesia (Link Net) and tower company (edotco) have surfaced. While the exit from Nepal’s mobile business and Myanmar’s tower operation is positive as it helps the group to de-risk, we remain concern over its presence in high-risk frontier markets which have led to sizeable impairments in recent years. We believe its headline profit will continue to be dragged by potential impairments in the future while these operations are not likely to deliver meaningful earnings in the near term due to elevated borrowing cost.

Source: PublicInvest Research - 4 Oct 2024