• Reiterate BUY, unchanged SOP-based TP of MYR3.40 implies 45% upside, c. 4% FY24F yield. Axiata Group’s results are broadly in line with our estimate but trumped consensus projection. We believe the earnings recovery and balance sheet deleveraging thesis are playing out nicely, helped by macroeconomic tailwinds and continued operational improvements. The group’s net debt/EBITDA is also at the lowest point in two years. The improving risk-reward profile is a key re-rating catalyst.

• Decent showing. 3Q24 core earnings of MYR228.1m (+32 QoQ, +201% YoY) brought the 9M24 total to MYR551m (>5-fold YoY), at 72% of our full-year forecast (consensus: 79%). 9M24 revenue and EBIT grew 3.3% YoY and 37% YoY (+39% on constant currency), the latter eclipsing the 2024 KPI of mid- teens growth on cost excellence. Smart (Cambodia), edotCo and Robi were the key bright spots, while associate contributions improved with greater CelcomDigi (CDB MK, BUY, TP: MYR4.35) merger synergies.

• FX impact (MYR strength) diluted EBITDA contributions from Indonesia (XL), Bangladesh (Robi) and Sri Lanka (Dialog) with the IDR, BDT and SLR sliding 5-14% against the MYR QoQ. Robi’s EBITDA fell 3% QoQ, with social unrest in June triggering internet shutdowns. followed by floods. Dialog’s EBITDA expanded 36% QoQ with the consolidation of Airtel (from 26 Jun). edotCo exhibited strong PAT growth from the revision in asset useful lives from 15 to 30 years, despite the 15% QoQ EBITDA drop on lower Malaysian revenue. Meanwhile, Boost’s PAT losses narrowed YTD to MYR134m (FY23: MYR-152m) of which MYR45m were start-up losses at Boost Bank.

• Indonesian merger in progress; edotCo Myanmmar (EMM) sale pending regulatory approvals. Due diligence on Smartfren is at the tail-end, with finalisation of definitive agreements and customary approvals to follow. The merger will allow for scale synergies and greatly narrow its spectrum deficit with bigger rivals. The EMM sale is expected to be completed by end-1Q25.

• Balance sheet de-leveraging. Net debt/EBITDA has improved to 2.59x (2Q24: 2.88x) from a high of 3.3x in 4Q23, helped by the MYR strength, the early partial redemption of the Eurobonds sitting at holdco of USD270m (MYR1.2bn) and stronger EBITDA. Consequently, the proportion of fixed rate loans has risen from 56% in the last quarter to 69%. Management sees the net debt/EBITDA target of 2.5x by 2026 as a sustainable threshold, supported by the monetisation of assets (proceeds utilised to further pare down USD debt) and continued EBITDA improvement.

• Valuation still undemanding; investment thesis intact. Our forecasts are maintained. Axiata trades at -1.5SD from its historical EV/EBITDA mean. Its improving risk-reward profile is a key re-rating catalyst. A 2% ESG premium is included in our TP.

Source: RHB Securities Research - 29 Nov 2024