Axiata’s 4Q23 results brought FY23 core profits to RM411m, representing 113%/103% of CGSCIMB’s and Bloomberg consensus forecasts.
CGSCIMB reiterates Add and RM3.25 TP as they see steps taken to monetise its assets fuelling a re-rating of its shares, narrowing the gap to its RM5.35/sh NAV.
Operationally positive; impairments weighed on reported earnings
Write downs for goodwill, assets and forex at its tower arm edotco’s Myanmar operations (RM888m) and Pakistan operations (RM40m) and at Nepalese mobile service provider NCell weighed on earnings, resulting in reported net loss of RM1,995m for FY23.
The agreements for the disposal of NCell in Dec 2023 will not have provisions to impact Axiata going forward, according to management.
CGSCIMB said a final DPS of 5sen declared brought FY23 DPS to 10sen, in line with management’s guidance.
The management is guiding for growth rates of a mid-single-digit for revenue and a mid-teen for EBIT in FY24F, largely in line with our estimates. The benchmark revenue and EBIT that management are using for FY23 to account for the disposals of NCell and edotco Myanmar are RM22bn and RM2.4bn, respectively.
Key takeaways from Axiata’s results call
The Management is confident of making up for the EBITDA gap (FY23: RM280m) from the deconsolidation of edotco Myanmar in 2024, from growth in its other operations within 2024. Order flows recently in the Philippines and Malaysia have been very strong, according to management.
The edotco recapitalisation exercise to fund future growth is ongoing, alongside the proposed disposal of edotco Myanmar. In CGSCIMB’s view, the changing regulatory/macro environment is most likely the key catalyst for edotco’s decision to exit Myanmar. This also helps to draw in more potential suitors for the edotco Group recapitalisation exercise according to management.
Realising the R in RNAV key to a re-rating
CGSCIMB reiterates their Add call on Axiata, with an unchanged TP of RM3.25, based on FY25F EV/EBITDA of 5.6x. We see the monetisation of its assets ultimately narrowing the gap between its share price and its RNAV of RM5.35/share. A 3.7% dividend yield provides support against downside.
They see the deconsolidation/monetisation of its assets as the key re-rating catalyst for Axiata’s shares.
Downside risks to their Add call are 1) severe deterioration in the operating environment of its various opcos, 2) significantly lower multiples for its asset monetisation, and 3) a shift away from its asset monetisation strategy.
Beating Forecasts
Meanwhile, Kenanga Investment Bank Berhad (Kenanga Research) in its Results Note today (Feb 23) said AXIATA’s FY23 results beat expectations on the back of traction in market repair at Indonesia and Bangladesh.
Moving forward, the prospects of attracting new investors for Edotco have improved. This is given the looming sale of its tower assets in Myanmar.
Kenanga Research maintains their forecasts at a TP of RM3.10 and OUTPERFORM call.
Surpassed expectations
Its FY23 core net profit of RM542m exceeded our full-year forecast by 35% and consensus estimate by 27%.
AXIATA declared 4QFY23 DPS of 5 sen which brings cumulative FY23 DPS to 10 sen (FY22: 14 sen). The variance versus Kenanga Research’s forecast was largely due to better-than buyer are ongoing.
The decision to exit Myanmar was underpinned by its uncertain and deteriorating market conditions. Moving forward, AXIATA expects improved earnings from Malaysia, Philippines and Bangladesh to compensate for the loss of EBITDA contribution (14%) from Myanmar.
Forecasts
Kenanga Research maintains their FY24F earnings whilst introducing FY25F numbers.
Valuations
Kenanga Research also maintains their Sum-of-Parts TP of RM3.10. There is no adjustment to their TP based on ESG given a 3-star rating as appraised by them.
Its FY23 core net profit excludes, amongst others, chunky exceptional items such as: (i) disposal gains on XL’s towers (RM84m) and Celcom (RM402m), (ii) disposal loss on NCell (RM356m), and (iii) impairment of asset/goodwill/write off for Ncell as well as Edotco Myanmar and Pakistan (RM2.2b).
Digital telcos doing well on recovery mode…
YoY comparisons are not meaningful given that FY23 figures exclude Celcom (FY22: 11-month contribution), NCell and Edotco’s Myanmar operations.
Nevertheless, for the unaffected subsidiaries, there was broad based normalized PATAMI growth in FY23 for the digital telcos except for Dialog.
The expansion was underpinned by: (i) XL: due to ARPU uplift, savings in direct cost, and improved contribution from data and digital services, (ii) Robi: driven by subscriber growth and ARPU expansion, and (iii) Smart: underpinned by data growth and absence of one-off regulatory fees in FY22.
…but drag from infrastructure opcos intensifies
On the other hand, FY23 normalised PATAMI was weaker for the infrastructure opcos due to: (i) Link Net: on the back of subscriber base contraction, higher opex, and spike in interest costs and depreciation (due to accelerated rollout of home passes), and (ii) Edotco: dragged by higher depreciation from towers at Philippines and Bangladesh, higher net finance cost and one-off taxation at Bangladesh.
Key takeaways
AXIATA revealed FY24 headline KPIs that include: (i) revenue growth: mid-single digit, and (ii) EBIT growth: mid-teens. FY23 baselines for comparison include: (i) revenue: RM22b, and (ii) EBIT: RM2.4b. Additionally, AXIATA guided FY24 capex of RM6.1b (FY23: RM5.0b); and
Edotco’s Myanmar operations were reclassified under asset held for sale in 4QFY23 given that negotiations with a potential buyer are ongoing. The decision to exit Myanmar was underpinned by its uncertain and deteriorating market conditions. Moving forward, AXIATA expects improved earnings from Malaysia, Philippines and Bangladesh to compensate for the loss of EBITDA contribution (14%) from Myanmar.
Following recognition of chunky impairments and write-offs for NCell in FY23, AXIATA does not expect to book in any more residuals for such charges moving forward.
