Most research houses lower their target prices (TPs) for Axiata Group Bhd after the telecommunication company’s net loss has ballooned to RM797.41 million for the third quarter ended Sept 30, 2023 (3QFY2023), from RM52.4 million a year ago.
The loss were mainly due to asset impairment and lower share of results from subsidiary CelcomDigi Bhd.
Maybank Investment Bank (Maybank IB) reiterates its BUY call with lower SOP-based TP of RM3.10, down by 9%.
“We view the overall risk-reward as being positive, with sequential net profit recovery and successful asset monetisation leading to balance sheet repair being potential re-rating catalysts,” it said.
However, the research house said Axiata’s 3Q23 results were in line with its expectations, Axiata’s 3Q23 core net profit of RM128 million, down 66% YoY, but an increase% 190 quarter-on-quarter (QoQ).
“This brings 9M23 core net profit to RM255 million, down by 76% YoY, 75% and 52% of our and consensus full-year forecasts, respectively. No dividend was declared this quarter, consistent with past practice,” it said.
“Hogging the headlines however, would likely be management’s proactiveness towards portfolio optimisation (Ncell and Edotco),” Maybank IB said.
Axiata announced its intention to exit Nepal, with Ncell now being reported as discontinuing operations in the financials. The impairment of RM1.01 billion during the quarter followed the reclassification of Axiata’s Nepal unit Ncell as an asset held for sale, resulting in a widened discontinuing operations loss of RM824.5 million. Quarterly revenue improved to RM5.7 billion, from RM5.37 billion previously.
Similar to Maybank, RHB Investment Bank (RHB IB) also lowers its target price, with SOP-TP of RM3.18 from RM3.35, 38% upside. It also maintains its BUY call.
The research house said Axiata’s planned divestment of Ncell, which is slightly EBIT dilutive, and the monetisation of Edotco were key highlights, given the weak earnings construct.
It added Axiata’s 3Q and 9M23 core earnings fell short at 47% of its earnings forecasts, and consensus at 52%.
“Relative to our forecast, the deviation was due to a weaker Edotco and and Ncell, and higher financing costs. A final RM811 million asset impairment (non-cash) was booked for Ncell ahead of a planned divestment.
“This is adding to the earlier impairment and write-down of capital gains tax (CGT) receivables totalling RM710.3 million in 2Q23. Overall, Axiata’s earnings construct looks to be secondary with expectations on its asset monetisation plans.”
RHB IB noted 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 RM375 million,” it said.
The research house noted Edotco’s monetisation is on-going, with Axiata saying due diligence is being carried out 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 Dec 6.”
Meanwhile, Kenanga Research is slightly more upbeat about Axiata as its 9MFY23 results beat its forecast but disappointed the market.
“It turned around sequentially in 3QFY23 driven by improved numbers from Robi and Dialog. Axiata expressed its intention to exit Ncell Nepal. We now project a profit in FY23F compared to a loss previously to reflect lower depreciation and financing costs,” it said.
Unlike RHB IB and Maybank IB, Kenanga raises its target price (TP) by 3% to RM3.55 from RM3.45. It also maintains its OUTPERFORM call.
“We incorporate our revised TP for CDB and removed NCell in our Sum-of-Parts (SOP) valuation. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us,” it said.
Post-briefing, Kenanga added that Axiata guidance for FY23 remains intact given that Ncell is earnings dilutive.
