• BUY, new SOP-based MYR3.40 TP (from MYR3.03), 23% upside, c.4% yield. Axiata’s 4Q/FY23 results trumped estimates. The stock’s earnings recovery and balance sheet repair thesis remain intact. Nonetheless, the impending divestment of edotCo Myanmar is likely to see the timing of edotco Group’s recapitalisation being pushed out. The stock remains a key big cap laggard with EV/EBITDA at -1.5SD of historical mean. Our TP includes a 2% ESG premium.

• A beat. 4Q23’s MYR287m core PATAMI (+124% QoQ) brought FY23 core PATAMI to MYR542m (-66% YoY), at 134% of our estimates (149% of Street’s). With core revenue and EBITDA trending largely in line, the key deviation was from lower-than-expected depreciation (non-cash). Note that Ncell ceased to contribute from Dec 2023 following the disposal. A second interim 5 sen DPS brings FY23 DPS to 10 sen, consistent with guidance.

• Brief review of key operating companies (OpCos):

  i. XL Axiata (EXCL IJ, BUY, TP: IDR3170) – Market price repair and cost efforts fuelled the 11% revenue growth and 20% EBIT growth in FY23 with customers on bundled FBB plans reaching 75% (FY22: 37%).

  ii. Dialog (Sri Lanka) – Cost rescaling saw a strong EBIT rebound with revenue ex-device up 5% in FY23.

  iii. Robi (Bangladesh) – continued strong ARPU uplift and subs growth drove the 16% and 28% increases in revenue and EBIT in FY23.

  iv. LinkNet (LINK IJ, NR) – EBIT losses likely to continue expanding as it pivots to a FiberCo model.

  v. edotco – Commendable revenue and EBITDA growth of 12.5% and 14% in FY23 from inorganic acquisitions in the Philippines and Malaysia. A MYR489m impairment was booked for the Myanmar division, which has been reclassified as an asset for sale.

  vi. CelcomDigi (CDB MK, NEUTRAL, TP: MYR4.35) (33.1% associate) – While integration synergies are trending ahead, the Phase 2 ramp-up portends executions risks, in our view, with integration cost set to accelerate.

• Key updates. Management flagged the edotCo Myanmar sale as likely to delay the planned deleveraging/monetisation of edotco, given approvals required (completion likely within 12 months). The disposal (c.14% of edotco’s EBITDA) is expected to be EBITDA neutral with growth in Malaysia (built-to-suit and co- los) and Philippines (inorganic) expected to fill the void.

• Forecasts. Axiata is guiding for mid-single digit revenue growth for FY24F (constant currency) with EBIT to grow at ‘mid-teens’. We raise FY24-25F earnings by 11-12% to realign our numbers with guidance and factor in recent revisions in EXCL and CDB forecasts. FY26F is also introduced.

Source: RHB Research - 23 Feb 2024