Axiata Group Bhd - Cautious FY25 Outlook with XL-Smartfren Merger in Focus
Thu, 27-Feb-2025 08:15 am
by Steven Chong • Apex Research

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AXIATA (6888)

Target Price (RM)

2.600

Recommendation

Buy

Summary

  • Axiata’s 4QFY24 core net profit declined -11.6% yoy and -25.8% qoq to RM169.2m, bringing FY24 core net profit at RM852.2m (+107.9% yoy), which is above expectations, accounted to 121% and 125% of ours and consensus expectations respectively.

  • Cautious guidance for FY25 but yet to factor in the impact from the merger between XL Axiata and Smartfren which is scheduled to be completed by 2QFY25.

  • Re-iterate our BUY recommendation with an unchanged target price of RM2.60, based on based on DCF valuation (WACC of 7.0% with a long-term growth rate of 0.5%).

 

Results above expectations. FY24 CNP at RM852.2m (+107.9% yoy) came above expectations, accounting to 121%/125% of our/consensus CNP forecast at RM700.0m/RM693.3m. The variance was mainly due to the lower-than-expected opex, which boosted EBIT by +109.2% yoy, significantly exceeded management's earlier mid-teens growth guidance.

 

YoY. 4QFY24 CNP slid -11.6% yoy to RM169.2m, while revenue for the quarter was also down -8.9% yoy to RM5.4bn due to weakness in Robi and Dialog. Robi’s revenue fell sharply stem from weaker prepaid data revenue, macroeconomic challenges, social unrest, and flooding, making it the largest decline among Axiata’s subsidiaries. Meanwhile, Dialog Axiata’s revenue was impacted as the company shifted its focus away from lower-margin hubbing business.

 

QoQ. CNP decreased by -25.8% qoq to RM169.2m weighed down by higher borrowing costs and taxation outweighed operational improvements​. Revenue, however, grew marginally by +0.8% qoq thanks to higher contributions from XL Axiata’s mobile and enterprise segments.

 

Outlook. For FY25, the Group is targeting i) low single-digit revenue growth, ii) high single-digit EBIT growth and iii) capex at RM4.4bn. However, we gather that this guidance has yet to factor in the impact of XL Axiata-Smartfren merger, which is anticipated to be completed by 2QFY25. Over the near term, earnings may face some pressure as the Group navigates the initial gestation phase of optimising Smartfren’s operations. We anticipate that Axiata will begin realising merger synergies by 4QFY25, with earnings accretion likely to emerge in the following year.

 

Earnings Revision. We revised our FY25 earnings forecast upward by 8.9%, reflecting a lower opex assumption after into account the latest EBIT guidance. We also revised our capex assumption 

 

Valuation. Maintained our BUY recommendation on Axiata with unchanged target price of RM2.60, based on DCF valuation (WACC of 7.0% with a long-term growth rate of 0.5%) and ascribed with three-star ESG rating. 

 

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

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