Review

• Axiata reported widened net loss of RM1,994mn in FY23. Results were dragged by exceptional items including: i) Ncell asset impairment (RM1.3bn), ii) Ncell write-off of capital gains tax-related receivable assets (RM317mn), iii) Edotco’s Myanmar asset impairment (RM489.4mn), and iv) net gain on the disposal of Celcom (RM402mn), among others.

• Excluding the exceptional items, Axiata’s FY23 core profit of RM733mn came in above expectations, accounting for 127.9% and 171.0% of ours and consensus’ full-year estimates. The positive variance was mainly attributed to stronger-than-expected profit contributions from the XL.

• A second dividend of 5.0sen/share was declared, bringing the YTD dividend to 10.0sen/share. (FY22: 14.0sen)

• On a constant currency basis, FY23’s revenue and EBIT grew 10.3% YoY and 20.9% YoY. Revenue growth was contributed by all opcos except Boost and Ncell. Meanwhile, the reported revenue grew at 8.1% YoY thanks to the growth from XL, Robi, Edotco, and the consolidation of Link Net.

• At the bottom line, FY23’s core profit dropped 53.8% YoY to RM733mn. Earnings were mainly dragged by both Link Net and Edotco. For Link Net, the earnings performance was impacted by higher marketing manpower and professional services cost. Meanwhile, the earnings performance of Edotco was dragged by higher net finance cost, one-off taxation at Bangladesh, and asset impairment for Pakistan and Myanmar.

Impact

• Maintain our FY24 and FY25 earnings forecasts. Meanwhile, we introduce the FY26 earnings forecast of RM1,053mn, representing an earnings growth of 12.7%.

Outlook

• For FY24, Axiata guided the headline KPIs which include: i) revenue growth rate of mid-single digit and ii) EBIT growth rate at mid-teens. Meanwhile, CAPEX was guided at RM6.1bn.

• Following the Nepal exit, management revealed that the group intends to dispose the telecommunication tower business in Myanmar, due to the worsening macroeconomic parameters and business conditions there. Hence, the Edotco’s Myanmar operations has been reclassified under asset held for sale in 4QFY23.

• We maintain our Sell recommendation on Axiata with an unchanged TP of RM2.35 based on SOTP valuation. Key downside risks include heightened competition, macroeconomic headwinds, and regulatory uncertainties.

Source: TA Research - 23 Feb 2024