28 April 2021 Briefing & Results Review: 1QFY21

HLIB Research PP 9484/12/2012 (031413) Tan J Young [email protected] XL 1Q21 results (603) 2083 1721 XL’s 1Q21 core net profit of IDR230bn (+39% QoQ, +311% YoY) matched expectation. Generally, the improvements were mainly driven by effective HOLD (Maintain) operating cost rationalization, lower D&A and interest expense . Sequential subscriber attritions along with subpar ARPU development were blamed on Target Price: RM3.76 price competition. Improved service quality with 4G coverage expansion while Previously: RM3.76 rationalizing 2G and 3G footprints. Data growth remains solid supported by Current Price: RM3.87 network quality and smartphone adoption. Reiterate HOLD on Axiata with TP of

Capital upside -2.8% RM3.76. Dividend yield 2.0% Expected total return -0.8% Within expectation. XL’s (66.3% subsidiary of Axiata) 1Q21 core net profit of IDR230bn (+39% QoQ, +311% YoY) matched expectation, accounting for 24% of Sector coverage: Telecommunications consensus’ full year estimate. 1Q21 one-off items include picocell gain (IDR93bn), Company description: Regional telco with tower disposal loss (IDR4bn) and forex gain (IDR2bn). presence in 8 markets and owns an independent towerco. QoQ. Turnover was down 2% at IDR6.3tr mainly due to the decline in data revenue which fell by 1% to IDR5.4tr. Data accounted for 94% of 1Q21 service revenue. Share price EBITDA margin was sustained at 50% where savings in regulatory (-6%), supplies RM Pts and overhead (-17%) were offset by higher expenses in infrastructure (+5%), sales AXIATA (LHS) KLCI (RHS) 7.0 and marketing (+ 17%). Core net profit strengthened 39% to IDR230bn mainly thanks 6.5 1900 to lower D&A (-21%) and finance cost (-18%). 6.0 1800 5.5 1700 YoY. Top line moderated 4% as both data and traditional service revenues fell by 1% 5.0 1600 4.5 and 33% to IDR5.4bn and IDR371bn, respectively. However, reported EBITDA only 1500 4.0 1400 eased by a smaller quantum of 2% thanks to lower infrastructure (-11%), labour (- 3.5 23%), interconnect and other direct (-28%) expenses. Subsequently, bottom line 3.0 1300 2.5 1200 jumped by 311% coupled with lower D&A (-7%) and interest cost (-12%). 2.0 1100 Apr-20 Jul-20 Sep-20 Nov-20 Feb-21 Apr-21 Subscriber. Total base churned 1.9m (or -3%) QoQ to 56.0m subs as the prepaid Historical return (% ) 1M 3M 12M attrition completely offset the 30k gain in postpaid subs. Prepaid and postpaid sub Absolute 4.9 13.4 3.5 base ended 1Q21 with 54.8m and 1.2m, respectively. Prepaid ARPUs was stable at Relative 4.5 11.0 -11.8 IDR33k while postpaid’s was eroded by IDR2k QoQ to IDR108k due to price

competition. With the improved coverage and more affordable device bundle Stock information offerings, 90% of total base or 50m (-2m QoQ) are smartphone users generating Bloomberg ticker AXIATA MK Bursa code 6888 1,391PB of total traffic in 1Q21, up 40% YoY. Issued shares (m) 9,173 Market capitalisation (RM m) 35,040 Expansion. Continued to invest to provide high quality internet services, especially 3-mth average volume (‘000) 4,577 ex-Java, by expanding 4G coverage. XL has added 13.5k 4G nodes YoY while SC Shariah compliant Yes rationalizing 3G and 2G footprints. This brings total base stations to circa 148k (+11% F4GBM Index member Yes YoY). LTE is now available in 458 cities and areas across with circa 57k ESG rating  eNodeB.

Major shareholders FY21 guidance. Reiterate (1) Revenue growth to be in line with market); (2) EBITDA Khazanah 36.8% margin of low 50%; (3) Capex of circa IDR7.0tr. EPF 17.2% ASB 14.7% Forecast. Maintain forecast pending analyst briefing in conjunction with Axiata’s 1Q21 results announcement slated on 25 May. Earnings summary FYE (Dec) FY20 FY21f FY22f Axiata remains a HOLD on the back of unchanged SOP -derived TP of RM3.76 (see PATMI - core (RM m) 865 1,321 1,418 EPS - core (sen) 9.5 14.5 15.5 Figure #1). We like its regional exposures with focus on emerging countries which P/E (x) 42.2 26.7 24.9 may deliver great growth potentials. While we are positive on -Digi merger allowing Axiata to unlock values, regulatory (especially in ) and execution risks are major concerns. Other potential corporate exercises that may unlock values include tower asset and digital businesses listings.

1 HLIB Research l www.hlebroking.com

Axiata l Briefing & Results Review: 1QFY21

Financial Forecast All items in (RM m) unless otherwise stated Income statement Quarterly financial summary FYE Dec FY18 FY19 FY20 FY21f FY22f FYE Dec 4Q19 1Q20 2Q20 3Q20 4Q20 Revenue 23,886 24,583 24,203 25,574 25,634 Revenue 6,267.0 6,036.6 5,792.4 6,111.7 6,262.5 COGS -15,849 -13,987 -13,544 -14,448 -14,477 COGS -3,541.5 -3,532.1 -3,208.1 -3,271.2 -3,532.2 EBITDA 8,036 10,597 10,660 11,126 11,158 EBITDA 2,725.5 2,504.5 2,584.4 2,840.4 2,730.3 D&A -7,645 -7,084 -8,485 -7,379 -7,379 D&A -1,888.4 -1,848.5 -1,842.2 -1,762.1 -3,032.2 EBIT 392 3,512 2,175 3,747 3,778 EBIT 837.1 656.0 742.1 1,078.3 -301.8 Net Interest Income -4,109 -701 -962 -1,064 -898 Net Interest Income -231.1 49.6 -368.0 -338.9 -305.1 Associates -428 -3 19 29 29 Associates 0.0 6.0 2.9 7.2 2.7 Exceptionals -200 65 -23 0 0 Exceptionals 26.3 -99.7 28.8 -22.1 70.4 PBT -4,346 2,872 1,208 2,711 2,909 PBT 632.3 611.9 405.8 724.5 -533.9 Tax -902 -1,057 -584 -961 -1,031 Tax -228.1 -213.6 -249.3 -256.8 135.5 Net Profit -5,247 1,815 624 1,750 1,878 Net Profit 404.1 398.3 156.5 467.7 -398.4 Minority Interests 213 -358 -259 -429 -461 Minority Interests -71.6 -210.2 -76.5 -114.7 142.4

Reported PATAMI -5,035 1,458 365 1,321 1,418 Reported PATAMI 332.6 188.1 80.0 353.0 -256.0 Adjusted PATAMI 824 960 865 1,321 1,418 Adjusted PATAMI 267.0 124.7 47.4 374.2 319.2

Basic Shares (m) 9,129 9,129 9,129 9,129 9,129 Basic Shares (m) 9,129 9,129 9,129.0 9,129.0 9,129.0 Rep. EPS sen -55.1 16.0 4.0 14.5 15.5 Rep. EPS sen 3.6 2.1 0.9 3.9 -2.8 Adj. EPS sen 9.0 10.5 9.5 14.5 15.5 Adj. EPS sen 2.9 1.4 0.5 4.1 3.5 Adj. FD EPS sen 9.0 10.5 9.5 14.5 15.5 Adj. FD EPS sen 2.9 1.4 0.5 4.1 3.5

Balance sheet Valuation Ratios FYE Dec FY18 FY19 FY20 FY21f FY22f FYE Dec FY18 FY19 FY20 FY21f FY22f Cash 5,060 4,224 7,194 6,065 5,604 PER (x) -7.0 24.2 38.7 26.7 24.9 Receivables 4,693 4,866 4,362 3,987 4,000 Adj. PER (x) 42.9 36.8 42.2 26.7 24.9 Inventories 219 154 142 167 167 FD PER (x) 42.9 36.8 42.2 26.7 24.9 Investments 0 0 0 0 0 Net DPS sen 9.5 9.5 9.0 7.8 12.4 Fixed Assets 27,290 25,642 24,496 23,790 23,003 Net DY (% ) 2.5 2.5 2.3 2.0 3.2 Intangibles 20,927 20,730 20,634 19,969 19,969 Book/share sen 256 245 246 257 265 Other Assets 5,710 11,019 11,133 10,844 10,873 P/Book (x) 1.5 1.6 1.6 1.5 1.5 Ttl Assets 63,898 66,635 67,962 64,822 63,616 FCF/share sen -6.5 22.5 41.8 27.5 29.2 Payables 11,177 12,291 12,006 12,536 12,576 FCF yield (% ) -1.7 5.8 10.8 7.1 7.5 Short Term Debt 4,474 7,632 2,972 3,216 1,216 Mkt Cap 35,109 35,109 35,109 35,109 35,109 Long Term Debt 14,647 9,194 14,774 10,195 10,195 Net Cash(Debt) -14,061 -12,602 -9,143 -7,346 -5,806 Other Liabilities 10,385 15,297 14,331 15,561 15,561 EV 49,170 47,711 44,252 42,455 40,915 Ttl Liab 40,684 44,415 44,082 41,508 39,547 EV/EBITDA (x) 6.1 4.5 4.1 3.8 3.7 Shareholders' Funds 20,069 18,976 20,541 19,939 20,694 ROE (% ) 3.5 4.3 3.8 5.7 5.9 Minority Interests 3,145 3,244 3,338 3,374 3,374 Current Ratio (x) 0.67 0.39 0.48 0.52 0.55 Total S/H Equity 23,215 22,220 23,879 23,313 24,069 Quick Ratio (x) 0.65 0.39 0.47 0.51 0.54 Ttl Liab&S/H Funds 63,898 66,635 67,962 64,822 63,616 Interest Cover (x) 0.3 2.0 2.0 3.1 3.7

Cashflow Analysis Other Ratios FYE Dec FY18 FY19 FY20 FY21f FY22f FYE Dec FY18 FY19 FY20 FY21f FY22f EBITDA 8,036 10,597 10,660 11,126 11,158 Sales Growth (% ) -2.1 2.9 -1.0 5.1 0.2 Net Interest -4,109 -701 -962 -1,064 -898 EBITDA Growth (% ) -12.4 31.9 1.0 3.9 0.3 Tax Paid -1,108 -1,182 -916 -961 -1,031 EBIT Growth (% ) -87.7 797.1 -3.0 9.9 0.8 Working Capital Chgs -1,681 1,006 231 0 26 PBT Growth (% ) -324.4 -166.1 -18.5 15.9 7.3 Other 4,965 -936 -1,659 0 0 Net Profit Growth (% ) -653.6 -129.0 -37.4 44.8 7.3 Operating CF 6,104 8,783 7,352 9,101 9,255 EBITDA Margin (% ) 33.6 43.1 44.0 43.5 43.5 FCF -590 2,052 2,700 2,509 2,663 EBIT Margin (% ) 1.6 14.3 14.0 14.7 14.7 CAPEX -6,695 -6,731 -4,766 -6,592 -6,592 PBT Margin (% ) -18.2 11.7 9.6 10.6 11.3 Asset Sales 57 28 65 0 0 Net Profit Margin (% ) -21.1 5.9 3.7 5.2 5.5 Acquisitions 0 0 113 0 0 Net Debt/Equity (% ) 60.6 56.7 41.0 31.5 24.1 Other -386 1,844 757 0 0 CAPEX/Sales (% ) 28.0 27.4 18.6 25.8 25.7 Investing CF -7,023 -4,859 -3,830 -6,592 -6,592 Dividends -862 -862 -816 -712 -1,123 Debt Chgs -63 -2,295 919 -2,000 -2,000 Other 246 -1,450 102 0 0 Financing CF -678 -4,607 205 -2,712 -3,123 Net Cashflow -1,597 -682 3,727 -203 -460

2 HLIB Research l www.hlebroking.com

Axiata l Briefing & Results Review: 1QFY21

Figure #1 SOP Valuation for Axiata Valuation (RMm) Implied Value /share Stake (%) Effective EV (RMm) Per Axiata Share % of SOP total Celcom (DCF) 15,947.4 100.0% 15,947.4 1.76 46.9% XL (DCF) 9,265.5 3,005.7 66.3% 6,138.4 0.68 18.1% Dialog (6x EV/EBITDA) 6,120.0 10.91 83.3% 5,099.2 0.56 15.0% (6x EV/EBITDA) 5,694.0 80.0% 4,555.2 0.50 13.4% (6x EV/EBITDA) 4,032.0 68.7% 2,770.0 0.31 8.2% Smart (6x EV/EBITDA) 3,430.0 72.5% 2,486.8 0.27 7.3% Digital 2,560.0 100.0% 2,560.0 0.28 7.5%

Total 39,556.9 4.37 Holding Co Net (Debt) / Cash -5,574.0 -0.62 -16.4% Total Equity Value 33,982.9 3.76 100.0% HLIB Research

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Hong Leong Investment Bank Berhad (10209-W)

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Stock rating guidelines BUY Expected absolute return of +10% or more over the next 12 months. HOLD Expected absolute return of -10% to +10% over the next 12 months. SELL Expected absolute return of -10% or less over the next 12 months. UNDER REVIEW Rating on the stock is temporarily under review which may or may not result to a change from the previous rating. NOT RATED Stock is not or no longer within regular coverage.

Sector rating guidelines OVERWEIGHT Sector expected to outperform the market over the next 12 months. NEUTRAL Sector expected to perform in-line with the market over the next 12 months. UNDERWEIGHT Sector expected to underperform the market over the next 12 months.

The stock rating guidelines as stipulated above serves as a guiding principle to stock ratings. However, apart from the abovementioned quantitative definitions, other qualitative measures and situational aspects will also be considered when arriving at the final stock rating. Stock rating may also be affected by the market capitalisation of the individual stock under review.

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