• Maintain HOLD (TP: RM2.50). Axiata’s 1QFY24 top-line improved, growing by +13.3% YoY, mainly driven by all operating companies except for fixed broadband operations in Indonesia. Nonetheless, the group recorded lower net profit of RM34mn (-27.7% YoY), dragged by forex losses and higher net finance cost. After stripping exceptional items, the group’s core net profit of RM149mn was within ours and consensus expectations, accounting for 24% and 22% respectively. Maintain a HOLD call with an unchanged TP of RM2.50. Our TP is based on sum-of-part valuation with each of the operating company valued using EV/EBITDA metric.

• Key highlights. On a quarterly basis, the group's revenue decreased by - 2.3% YoY, attributed to lower contributions from all operating companies except for mobile operations in Indonesia, Sri Lanka, Bangladesh, and Cambodia. Breaking down revenue geographically, Indonesia's top-line remained steady, while Bangladesh saw a 1.2% QoQ increase driven by higher data revenue from the prepaid business. Sri Lanka experienced a 4.1% QoQ increase primarily due to the appreciation of the Sri Lankan Rupee against the Ringgit Malaysia. Cambodia's revenue grew slightly by 1.3% QoQ due to higher data revenue. In tandem with the sluggish revenue growth, the group recorded lower earnings (down by 6.9% QoQ) due to (i) foreign exchange losses compared to gains in 4Q23, (ii) a lower share of profits from associates, and (iii) higher finance costs.

• Earnings Revision. No changes to our forecast.

• Outlook. In regards with MOU between Axiata Group and Sinar Mas to explore the proposed merger of XL Axiata and Smartfren in Indonesia, we are positive on this merger development. We anticipate potential opportunities to integrate their respective Fixed Broadband (FBB) business units, namely Oxygen and XL Home, which could lead to a larger subscriber base in the FBB business once the merger is finalised. Aside to that, the management's guided FY24 KPIs include mid-single-digit revenue growth, mid-teens EBIT growth, and a capex of RM6.1bn.

Source: BIMB Securities Research - 30 May 2024