TELECOMMUNICATION AXIATA GROUP
(AXIATA MK EQUITY, AXIA.KL) 12 Apr 2021
Aiming for synergies to offset Celcom Digi deal Company report BUY
Alex Goh (Maintained) [email protected] 03-2036 2280 Rationale for report: Company update
Investment Highlights Price RM4.11 Fair Value RM4.50 52-week High/Low RM4.23/RM2.66 We reiterate BUY on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM4.50/share, which reflects a Key Changes neutral ESG rating of 3 stars. This implies an FY21F EV/EBITDA Fair value of 4.5x – 1 standard deviation below its 3-year average of 5.5x. EPS Axiata’s share price rose 31 sen or 8% on Friday after the YE to Dec FY20 FY21F FY22F FY23F announcement by Axiata and Telenor that they are in advanced
Revenue (RM mil) 24,203.2 24,799.3 25,550.9 26,339.2 discussions to merge the telco operations of Celcom Axiata Core net profit (RM mil) 865.0 991.1 1,263.5 1,375.5 (Celcom) and Digi.Com. FD Core EPS (sen) 9.4 10.8 13.8 15.0 FD Core EPS growth (%) (15.6) 14.6 27.5 8.9 As highlighted in our Sector Report on 9 April, we understand that Consensus Net Profit (RM mil) - 1,061.7 1,265.2 1,485.5 this could involve Digi acquiring Axiata's wholly-owned Celcom DPS (sen) 7.0 9.5 9.5 9.5 PE (x) 43.6 38.0 29.8 27.4 via a share swap together with a cash equalisation sum of RM2bil, EV/EBITDA (x) 4.1 4.5 4.2 3.9 of which RM1.7bil will come from new Digi debt and RM300mil Div yield (%) 2.0 2.7 2.7 2.7 from Telenor. Both Axiata and Telenor will have equal stakes of ROE (%) 2.2 5.7 7.3 7.7 33.1% each in the merged entity which will be called Celcom Digi, Net Gearing (%) 59.8 90.7 76.9 63.6 with the balance held by Digi's minority shareholders.
Stock and Financial Data Celcom Digi will emerge as the leading telecommunications
Shares Outstanding (million) 9,169.5 service provider in Malaysia in terms of market capitalisation, Market Cap (RM mil) 37,686.7 revenue and profit, with proforma FY20 revenue of RM12.4bil, pre- Book Value (RM/share) 1.92 synergy EBITDA of RM5.7bil and 19mil customers, 71% above P/BV (x) 2.1 Maxis, the current market leader. ROE (%) 2.2 Net Gearing (%) 59.8 Axiata could have the larger influence with Celcom Digi's Major Shareholders Khazanah (37.6%) chairman position to be occupied by Axiata's current CEO Datuk EPF (17.2%) Izzaddin Idris while Celcom's current CEO Idham Nawawi will assume the same role in the merged entity, providing reassurance Free Float 0.4 Avg Daily Value (RM mil) 16.5 of continued local control. Meanwhile, Telenor will hold the vice- chairman role via Jørgen C. Arentz Rostrup with Albern Murty as Price performance 3mth 6mth 12mth deputy CEO.
Absolute (%) 13.2 37.9 15.6 Assuming no synergies nor opex savings, we estimate that the Relative (%) 13.2 29.9 (2.7) deconsolidation of Celcom’s earnings will cause Axiata’s FY22F
EPS to decrease by 9%, partly offset by the contribution of the 7.0 2,000 33.1% associate contribution from Celcom Digi while EBITDA 1,800 6.0 drop further by 22% (Exhibit 1). 1,600 5.0 1,400 Assuming a 10% reduction in Celcom Digi’s opex, Axiata’s FY22F 1,200 4.0 EPS will instead increase by 4%, while EBITDA decrease by 17%. 1,000 Nevertheless, as Axiata’s FY22F net debt/EBITDA will improve 3.0 800 from 1.1x to 0.8x–0.9x, we expect an improvement in the group’s 2.0 600 EV/EBITDA valuations from 4.2x currently. Given the lower 400 EBITDA from the deconsolidation of Celcom, we estimate that 1.0 200 Axiata’s FY22F EV/EBITDA would need to rise to 5x (slightly 0.0 0 below its 3-year average) to reach our fair value of RM4.50/share. Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 For a regional telco operator aiming to be a high dividend-yielding AXIATA MK FBMKLCI Index stock with excellent opportunities to further monetise its assets and engage in multiple merger and acquisition activities, Axiata is trading at a bargain FY21F EV/EBITDA of 4x vs. Maxis' 12x.
Axiata Group 12 Apr 2021
EXHIBIT 1: IMPACT FROM ACQUISITION OF CELCOM BY DIGI
Source: AmBank Research
AmInvestment Bank Bhd 2 Axiata Group 12 Apr 2021
EXHIBIT 2: MERGER BREAKDOWN
Source: AmBank Research
AmInvestment Bank Bhd 3 Axiata Group 12 Apr 2021
EXHIBIT 3: PB BAND CHART EXHIBIT 4: PE BAND CHART
3.50 140.00
3.00 120.00
2.50 +1δ 100.00
Avg 2.00 80.00 +1δ -1δ 1.50 60.00
1.00 40.00 Avg
0.50 20.00
-1δ 0.00 0.00 Jul-17 Jul-18 Jul-19 Jul-20 Jul-17 Jul-18 Jul-19 Jul-20 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-21 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-21
Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 -20.00
EXHIBIT 5: ESG RATING Overall ★ ★ ★ Zero-carbon initiatives ★ ★ ★ ★ Health & Safety Compliance ★ ★ ★ ★ Independent BOD ★ ★ ★ Corporate social responsibility ★ ★ ★ ★ Pollution control ★ ★ ★ ★ Supply chain auditing ★ ★ ★ Corruption-free pledge ★ ★ ★ Accessibility & transparency ★ ★ ★ ★ We accord a discount/premium of -6%, -3%, 0%, +3% and +6% on fundamental fair value based on the overall ESG rating as appraised by us, from 1-star to 5-star
Source: AmInvestment Bank
AmInvestment Bank Bhd 4 Axiata Group 12 Apr 2021
EXHIBIT 6: SUM-OF-PARTS BREAKDOWN
Source: AmInvestment Bank
AmInvestment Bank Bhd 5 Axiata Group 12 Apr 2021
EXHIBIT 7: FINANCIAL DATA
Income Statement (RMmil, YE 31 Dec) FY19 FY20 FY21F FY22F FY23F
Revenue 24,583.3 24,203.2 24,799.3 25,550.9 26,339.2 EBITDA 11,032.4 11,653.1 11,769.9 12,168.4 12,481.0 Depreciation/Amortisation (7,084.2) (8,485.0) (8,400.1) (8,484.1) (8,653.8) Operating income (EBIT) 3,948.1 3,168.1 3,369.7 3,684.3 3,827.2 Other income & associates 432.1 (481.1) 9.4 13.7 17.3 Net interest (1,508.0) (1,515.9) (1,667.5) (1,684.1) (1,701.0) Exceptional items - - - - - Pretax profit 2,872.2 1,171.1 1,711.7 2,013.8 2,143.5 Taxation (1,057.1) (547.1) (513.5) (563.9) (600.2) Minorities/pref dividends (357.5) (258.9) (207.1) (186.4) (167.8) Net profit 1,457.6 365.2 991.1 1,263.5 1,375.5 Core net profit 1,022.0 865.0 991.1 1,263.5 1,375.5
Balance Sheet (RMmil, YE 31 Dec) FY19 FY20 FY21F FY22F FY23F
Fixed assets 25,816.1 24,675.4 30,155.8 30,526.1 31,042.7 Intangible assets 20,724.4 20,634.4 19,602.7 18,622.5 17,691.4 Other long-term assets 10,467.7 10,687.3 10,758.5 10,835.8 10,919.4 Total non-current assets 57,008.2 55,997.1 60,516.9 59,984.5 59,653.6 Cash & equivalent 4,231.1 7,194.3 3,975.8 8,001.2 12,145.3 Stock 154.3 141.7 108.7 112.0 115.5 Trade debtors 4,722.0 4,362.4 4,076.6 4,200.2 4,329.7 Other current assets 418.3 266.3 279.6 293.6 308.3 Total current assets 9,525.7 11,964.6 8,440.7 12,606.9 16,898.7 Trade creditors 12,178.3 12,005.8 10,870.9 11,200.4 11,545.9 Short-term borrowings 7,631.8 2,971.5 3,268.7 3,595.6 3,955.1 Other current liabilities 4,527.5 2,416.7 2,478.2 2,626.1 2,765.3 Total current liabilities 24,337.5 17,394.0 16,617.8 17,422.1 18,266.4 Long-term borrowings 9,194.5 14,773.9 16,251.3 17,876.4 19,664.1 Other long-term liabilities 10,781.8 11,914.4 12,510.2 13,135.7 13,792.5 Total long-term liabilities 19,976.3 26,688.3 28,761.4 31,012.1 33,456.5 Shareholders’ funds 16,180.8 17,641.1 17,133.0 17,525.4 18,029.9 Minority interests 6,039.2 6,238.3 6,445.4 6,631.8 6,799.6 BV/share (RM) 1.77 1.92 1.87 1.91 1.97
Cash Flow (RMmil, YE 31 Dec) FY19 FY20 FY21F FY22F FY23F
Pretax profit 2,872.2 1,171.1 1,711.7 2,013.8 2,143.5 Depreciation/Amortisation 7,084.2 8,485.0 8,400.1 8,484.1 8,653.8 Net change in working capital 188.0 (102.5) 160.7 202.6 212.5 Others (2,368.4) (1,938.6) (2,049.9) (2,116.1) (2,168.4) Cash flow from operations 7,776.1 7,615.0 8,222.7 8,584.4 8,841.4 Capital expenditure (6,711.2) (5,445.7) (6,199.8) (6,387.7) (6,584.8) Net investments & sale of fixed assets - - - - - Others - - - - - Cash flow from investing (6,711.2) (5,445.7) (6,199.8) (6,387.7) (6,584.8) Debt raised/(repaid) 2,894.8 1,897.8 2,000.0 2,000.0 2,000.0 Equity raised/(repaid) - - - - - Dividends paid (861.7) (869.0) (641.9) (871.1) (871.1) Others - - - - - Cash flow from financing 2,033.1 1,028.8 1,358.1 1,128.9 1,128.9 Net cash flow 3,097.9 3,198.2 3,381.0 3,325.6 3,385.5 Net cash/(debt) b/f (4,975.4) (3,150.0) (2,406.2) (1,363.2) (504.4) Net cash/(debt) c/f (1,877.5) 48.2 974.8 1,962.3 2,881.1
Key Ratios (YE 31 Dec) FY19 FY20 FY21F FY22F FY23F
Revenue growth (%) 2.9 (1.5) 2.5 3.0 3.1 EBITDA growth (%) 0.3 5.6 1.0 3.4 2.6 Pretax margin (%) 11.7 4.8 6.9 7.9 8.1 Net profit margin (%) 5.9 1.5 4.0 4.9 5.2 Interest cover (x) 2.6 2.1 2.0 2.2 2.2 Effective tax rate (%) 36.8 46.7 30.0 28.0 28.0 Dividend payout (%) 59.6 175.8 87.9 68.9 63.3 Debtors turnover (days) 73 68 62 59 59 Stock turnover (days) 3 2 2 2 2 Creditors turnover (days) 183 182 168 158 158
Source: Company, AmInvestment Bank Bhd estimates
AmInvestment Bank Bhd 6 Axiata Group 12 Apr 2021
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