Axiata Group Bhd - Muted start to FY25
Thu, 29-May-2025 07:09 am
by Steven Chong • Apex Research

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AXIATA (6888)

Target Price (RM)

2.100

Recommendation

Hold

  • Axiata’s 1QFY25 core net profit surged +166.3% yoy to RM159.8m, which is slightly below expectations, representing 18.2%/19.2% of both ours and consensus expectations respectively.

  • We expect some earnings softness in 2QFY25 due to the XL Axiata–Smartfren merger, as Axiata’s reduced 34.8% stake in the new entity, XLSmart, will likely lead to earnings dilution.

  • We keep our forecast unchanged at the moment, pending further clarity from the upcoming briefing.

  • Re-iterate our HOLD recommendation with an unchanged target price of RM2.10, based on based on DCF valuation (WACC of 6.8% with a long-term growth rate of 0.5%).

 

Results below expectations. FY24 CNP at RM159.8m (+166.3% yoy) was slightly below both ours and consensus expectations, making up to 18.2% and 19.2% of forecasted CNP respectively. The variance was mainly due to the lower-than-expected contribution from XL Axiata, which faced pricing pressures during the quarter.

 

YoY. 1QFY25 CNP jumped +166.3% yoy, primarily driven by lower D&A expenses and borrowing costs, reflecting the Group’s ongoing de-gearing efforts.  Revenue for the quarter, however, was down -11.3% yoy to RM5.1bn due to weakness across most of its segments stemming from currency translation losses as the Ringgit strengthened.  Notably, the digital banking segment (Boost) was the only business to record topline growth, driven by higher interest income from loan disbursements.

 

QoQ. CNP returned to the black from a loss of -RM224.8m in 4QFY24, supported by foreign exchange gains, along with lower finance costs, taxes, and D&A. Meanwhile, revenue plunged -5.1% qoq, mainly due to weaker performance from XL Axiata and Dialog. Dialog was affected by the scaling down of its low-margin international wholesale business, while XL Axiata saw declines in both data and digital revenue.

 

Outlook. Regarding the potential sale of Edotco, we estimate that a full divestment of Axiata’s 63% stake by year-end could lower the Group’s bottom line by -13.3%/-10.5%/-8.8% in FY26/FY27/FY28, respectively. This reflects the loss of earnings contribution from Edotco, a key profit contributor for the Group. We believe some earnings softness in 2QFY25 is inevitable following the completion of the XL Axiata–Smartfren merger, which resulted in the formation of the new entity, XLSmart. With Axiata’s stake in the merged entity reduced to 34.8%, we anticipate a certain degree of earnings dilution moving forward.

 

Earnings Revision. We keep our forecast unchanged at the moment, pending further clarity from the upcoming briefing. 

 

Valuation. Maintained our HOLD recommendation on Axiata with unchanged target price of RM2.10, based on DCF valuation (WACC of 6.8% with a long-term growth rate of 0.5%). 

 

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

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