• Still BUY, new SOP TP of MYR3.18 from MYR3.35, 38% upside. 3Q/9MFY23 results missed our/consensus’ estimates. The planned divestment of Ncell, which is slightly EBIT dilutive, and the monetisation of edotCo (an ongoing process) were key highlights, given the weak earnings construct. The stock remains a deep sector laggard (YTD: -26%), being the worst-performing of the ASEAN-4 telcos, with forward EV/EBITDA at -2SD below the historical mean. A share price re-rating should accompany better clarity on its asset delayering and balance sheet deleveraging initiatives.

• 3Q/9M23 core earnings fell short at 47% of our forecasts (consensus: 52%). Relative to our forecast, the deviation was due to a weaker edotco and Ncell, and higher financing costs. A final MYR811m asset impairment (non-cash) was booked for Ncell ahead of a planned divestment, adding to the earlier impairment and write-down of capital gains tax (CGT) receivables totalling MYR710.3m in 2Q23. Overall, Axiata’s earnings construct looks to be secondary with expectations on its asset monetisation plans.

• 9M23 EBITDA up 12% YoY, core EBITDA and margin steady QoQ. 9M23 EBITDA growth was led by: i) XL Axiata (EXCL IJ, BUY, TP: IDR3,140) which continues to see price reparation in the market, ii) Robi (good subs and APRU uplift), and iii) Dialog (cost-rescaling initiatives) with double-digit EBITDA growth sequentially. This was partially offset by declines at Ncell (-5%) and ADA’s extended EBITDA loss. Associate contributions grew 34% QoQ, largely from the stronger showing at CelcomDigi (CDB MK, NEUTRAL, TP: MYR4.70). Link Net’s losses will likely expand as it transitions to a FiberCo model. We lower FY23-25F core earnings by 4-14% after incorporating our latest estimates on CelcomDigi, and on the back of lower EBITDA estimates for edotCo and Ncell.

• Clean exit for Nepal; edotco monetisation ongoing. Ncell has been classified as an asset for sale (discontinuing operations) with a suitable buyer to be identified in due course. Talks of a divestment have reverberated for some time, given unrelenting regulatory uncertainties, spectrum constraints, and an acute erosion in voice revenue from lower mobile interconnect rates. Management’s focus will be on a clean exit, which suggests it is prepared to ‘settle for less’, noting that the carrying value has been written down to MYR375m. On edotCo, Axiata said due diligence is ongoing for a divestment to strategic investors as the towerco seeks to de-lever its balance sheet. Options explored include a secondary share issuance which may see existing shareholders diluted. Management will shed more light on its portfolio strategy at the Investor Day on 6 Dec.

• Key risks: Competition, weaker-than-expected earnings, regulatory setbacks, and FX. Our TP bakes in a 2% ESG premium.

Source: RHB Securities Research - 30 Nov 2023