Results

• Earnings impaced by one-offs – Axiata’s 2Q23 net loss widened to RM576m in 2Q23 from RM106m a year ago due to lower contribution from associate CelcomDigi as compared to Celcom’s previous contribution as a subsidiary, Ncell’s non-cash asset impairment of RM393m and capital gains tax write-off of RM317m. These factors were cushioned by a disposal gain of RM402m from the Celdom-Digi merger. Meanwhile, underlying PATAMI declined 80% YoY to RM67m due to higher depreciation, higher finance costs and lower share of profit from CelcomDigi.

• Higher revenue - Quarterly revenue grew 15% YoY to RM5.995b due to higher contribution from all Operating Companies (OpCos) except Ncell and ADA.

• Lower QoQ earnings – 2Q23 underlying PATAMI declined 20% QoQ to RM67m due to reasons mentioned above. This was despite quarterly revenue rising 11% QoQ. XL continues to dominate earnings growth as other OpCos posted flat or declined profits.

• Steady margins – Axiata’s 2Q23 EBITDA margin stood at 46% as compared to 44% in 1Q23 due to higher EBITDA.

• Improved gearing – Net debt/EBITDA eased to 3.06x from 3.23x in 1Q23 due to exclusion of Celcom’s EBITDA but is expected to drop to 2.92x as proceeds of RM2.4b from repayment of Celcom shareholder loan will be used to repay debt. Adjusted Operating free cash flow increased to RM601m to RM352m in 1Q23 while cash reserve rose to RM6.5b from RM5.45b in 1Q23.

Earnings Outlook/Revision

• Earnings below expectation – 1H23 revenue achieved 51%/49% of our/consensus FY23 forecast but underlying PATAMI only achieved 14%/13% of our/consensus full year forecasts respectively.

• Forecast reduced – We are slashing our net earnings estimate for FY23 and FY24 by 35% and 13% after reducing our assumptions of contribution from CelcomDigi, Ncell, Link Net, edotco and ADA while keeping our revenue forecast.

• Management guidance - The management maintained its 2023 guidance: a) mid-single digit Revenue growth. b) high-single digit EBIT growth but guided capex of RM6.5b-RM6.8b which was lower than RM7.1b earlier.

Valuation & Recommendation

• Maintain BUY with a lower target price of RM3.27 (previously RM3.72) based on Sum-Of-Parts (SOP).

Source: JF Apex Securities Research - 30 Aug 2023