Axiata Group (Axiata) reported a net profit of RM104.4m in 2QFY24 (2QFY23: net loss of RM235.9m), mainly driven by stronger contribution from Cambodia’s Smart and Indonesia’s XL. Stripping out non-operating items, the group delivered a normalised net profit of RM180.6m, jumping 386% YoY. Cumulatively, the results were above our estimate, coming in at 60% of our full-year forecast but were in line with consensus. The discrepancy in our forecast was largely due to higher-than-expected contribution from Cambodia. We raise our FY24-26F earnings forecasts by an average of 16% to factor in higher margin. As such, our SOTP-based TP is revised to RM2.35. Given a limited downside to our TP, we upgrade Axiata to Neutral. An interim dividend of 5.0sen per share was declared (2QFY23: 5.0sen).

• 2QFY24 revenue rose 2.9% YoY, mainly contributed by higher revenue from all operating units except for mobile operations in Sri Lanka and fixed broadband business in Indonesia. The best performers were edotco, which saw a 19% YoY increase in revenue, and Cambodia (+16.2% YoY). The increase in edotco’s revenue was due to improvement in tenancy ratio from 1.61x to 1.66x as well as a 7% increase in the number of towers. Meanwhile, Cambodia’s Smart posted higher subscriber base and ARPU.

• 2QFY24 normalised net profit climbed to RM180.6m. This was largely contributed by stronger profit from Smart, which grew 63% YoY with net margin expanding from 27% in 2QFY23 to 32.8% in the current quarter. Although revenue was higher, the improvement was mainly coming from lower operating expenses, particularly direct cost and network cost. Smart accounted for 66% of the group’s total profit in 2QFY24. Meanwhile, XL’s profit rose 10% YoY due to higher prepaid ARPU and lower sales and marketing expenses.

• 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 nonbinding MoU to explore a proposed merger of XL Axiata with the fourthlargest 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 end of this year. While its exit from Myanmar’s tower operation is viewed positively as it helps the group to de-risk, we remain concerned over its presence in other high-risk markets (example Bangladesh - currency has depreciated considerably after its Prime Minister resigned and fled the country early this month).

Source: PublicInvest Research - 29 Aug 2024