Axiata Group Berhad - Recovery is on track; but the Bangladesh market remained challenging
Thu, 29-Aug-2024 07:13 am
by Steven Chong • Apex Research

Counter

AXIATA (6888)

Target Price (RM)

2.69

Recommendation

Hold

Summary

Axiata’s 2QFY24 core net profit jumped +385.9% yoy and +20.9% qoq to RM180.6m, bringing 1HFY24 core net profit to RM330.0m, which deemed in-line at 55% ours and 48% consensus expectations.

Revised our earnings forecast for FY24-26 upward by +1.8%/+3.6%/+8.0% given that the impact from social unrest in Bangladesh is not as severe as previously anticipated coupled with brighter prospect from Edotco, propelled by demand from 5G deployment.

We maintain our HOLD recommendation with a higher target price of RM2.69 based on DCF valuation (WACC of 7% with a long-term growth rate of 0.5%).

 

Results Review

  • Results review. Axiata’s reported 2QFY24 core net profit (after excluding forex and derivative losses: RM48.6m; gain on disposal of towers: RM20.5m; others losses: RM48.0m) stood at RM180.6m, up +385.9% yoy and +20.9% qoq. The strong performance was led by improvement across all business segment except Dialog and Linknet. Similarly, revenue registered at RM5.8bn, recording growth of +2.9% yoy and +1.7% qoq.

  • Results deemed in line. 1HFY24 core net profit of RM330.0m makes up to 55% and 48.0% of both our and consensus forecasted CNP and was within expectations.

  • Operations Highlights. XL Axiata subscribers rose marginally by +0.8% yoy, while blended ARPU remained healthy at IDR44,000 against IDR42,000 in 2QFY23. Concurrently, contribution from Robi remained positive as subscribers grew +5.6% yoy offsetting the softer blended ARPU of BDT144 (vs BDT146 in 2QFY23). Meanwhile, edotco demonstrated robust EBIT growth of +24.6% yoy, after excluding one-off provision adjustment of c.RM25m driven by growth on key markets like Malaysia, Bangladesh and Cambodia. 

  • Industry Highlights. The acquisition of the remaining 34% stake in Linknet is ongoing, with approval from minority shareholders to be sought at the upcoming general meeting in September. Furthermore, the Group has signed a non-binding MOU for the proposed merger between XL Axiata and Smartfren, with due diligence expected to be finalised in 4Q24. Meanwhile, Edotco is still in the process of exiting the Myanmar market and is currently awaiting regulatory approvals. 

  • Outlook. Despite the challenging macro environment, management retained its FY24 guidance of: a) mid-single digit revenue growth, b) mid-teens EBIT growth, c) capex of RM6.1bn. While the political unrest in Bangladesh has minimal impact on Robi’s subscriber base, we reckon topline contributions may be weaken by the softer forex, which declined by more than -13% year-to-date (Jan-Aug), coupled with the recent flood disaster.

  • Valuation. We maintain our HOLD recommendation with a higher target price of RM2.69 based on DCF valuation (WACC of 7% with a long-term growth rate of 0.5%). We tweak our earnings forecast for FY24F-FY26F upwards by +1.8%/+3.6%/+8.0% on milder-than-expected impact of social unrest in Bangladesh and a more promising outlook for Edotco, driven by increased demand from 5G deployment.

  • Risk. Axiata continues to face geopolitical, macroeconomic and regulatory risks as well as strengthening USD and high interest rates.

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