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PublicInvest Research Results Review Thursday, May 27, 2021 KDN PP17686/03/2013(032117) GROUP Neutral

DESCRIPTION In Line With Expectations

One of the regional leading telco players with operations Axiata Group (Axiata) reported a 60% decline in 1QFY21 headline net profit to spanning across nine countries. RM75.6m. However, core net profit rose by 75% YoY to RM218.4m on the

back of stronger contribution from XL and Dialog as well as lower losses from 12-Month Target Price RM4.00 Axiata Digital Services (ADS). The results were in line with expectations, Current Price RM3.50 accounting for 23% and 20% of our and market full-year forecasts Expected Return 14.3% respectively. Celcom has benefitted from stronger subscriber growth while Market Main ADS, in the absence of e-Tunai Rakyat initiatives and an increase in online Sector Telecommunications transactions, saw losses lowered. We maintain our FY21-23F earnings Bursa Code 6888 forecasts. We maintain our Neutral call though our SOTP-based TP is revised Bloomberg Ticker AXIATA MK Shariah-compliant Yes to RM4.00 as we roll over our valuation base year to FY22F.

§ 1QFY21 revenue was flat as stronger contribution from , Sri SHARE PRICE CHART Lanka and was offset by lower revenue posted by Indonesia, 4.20 Bangladesh and Nepal. Celcom Malaysia saw its subscriber base 4.00 growing by 12.7% YoY (largely due to stronger prepaid subscriber growth 3.80 of 17.7% YoY) on a lower blended ARPU of RM45 versus RM49 in 3.60 1QFY20. As a result, revenue contribution from Malaysia improved by 3.40 6.3% YoY. Indonesia, the group’s largest revenue contributor, posted a 4.7% drop due to intense competition and weak consumer spending. 3.20 Indonesia and Malaysia accounted for 56% of total revenue. 3.00 2.80 § Normalised 1QFY21 net profit increased by 75% YoY due to stronger 2.60 earnings from XL (Indonesia) and Dialog (). XL delivered Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 RM42m net profit compared to a loss of RM25m in 1QFY20 while Dialog posted a 33% growth to RM79m. ADS also posted lower net loss of 52 Week Range (RM) 2.66-4.23 RM29m versus RM105m in the previous year’s corresponding quarter as 3-Month Average Vol (‘000) 4,287.0 gross transaction value increased from RM882m to RM1bn. Additionally, SHARE PRICE PERFORMANCE the absence of e-Tunai Rakyat initiatives helped to lower ADS losses.

1M 3M 6M § Dividend payout to improve. The group is targeting to raise its dividend Absolute Returns -8.4 -0.6 6.9 payout to 20sen per share by 2024 as part of its strategy to transform into Relative Returns -6.9 -1.4 -4.1 a high dividend company. Should the proposed merger with Digi materialise, we do not rule out the possibility of a special dividend given KEY STOCK DATA the RM2bn cash proceeds it will receive from the sale of Celcom. Over the next 3 years, we are projecting a regular dividend per share of 9-

Market Capitalisation (RM m) 32,104.5 12sen per share, translating into a yield of c.3%. No. of Shares (m) 9,172.7

MAJOR SHAREHOLDERS

% Khazanah 36.8 Employees Provident Fund 17.7 Skim Amanah Saham Bumiputera 14.7

KEY FINANCIAL SUMMARY

FYE Dec (RM m) 2019A 2020A 2021F 2022F 2023F CAGR

Revenue 24,583.3 24,203.2 25,353.1 25,879.4 26,318.6 2.8% Operating Profit 4,324.6 2,495.0 3,349.2 3,701.7 3,960.6 16.7% 2,872.2 1,171.2 1,884.2 2,117.7 2,282.7 24.9% Pre-tax Profit Core Net Profit 959.7 865.4 956.3 1,106.8 1,211.8 11.9% Core EPS (Sen) 10.6 9.4 10.4 12.1 13.2 11.9%

P/E (x) 33.1 37.1 33.6 29.0 26.5 Eltricia Foong DPS (Sen) 9.0 7.0 9.0 10.0 12.0 T 603 2268 3000 Dividend Yield (%) 2.6 2.0 2.6 2.9 3.4 F 603 2268 3014 E [email protected] Source: Company, PublicInvest Research estimates

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Table 1: Axiata’s results summary YoY QoQ FYE Dec (RM'm) 1Q21 1Q20 Chg chg Comment (%) (%)

Stronger contribution from Malaysia, Sri Lanka Operating Revenue 6,064.0 6,036.6 0.5 (3.2) & Cambodia was offset by weaker performance in Indonesia, Bangladesh & Nepal

Mainly lifted by Malaysia but this was offset by EBITDA 2,691.9 2,503.9 7.5 (1.4) lower contribution from Indonesia & Nepal

Depre & amortisation (1,975.0) (1,848.5) 6.8 (34.9) Accelerated depreciation charged

Forex gain/(losses) 72.2 65.6 10.1 >100

Other operating income 69.6 414.6 (83.2) 6.7

Other gains/(losses) 16.2 0.6 >100 >100

EBIT 874.8 1,136.1 (23.0) >(100)

Net interest expense (514.6) (549.4) (6.3) >100

Associates/JV 1.7 6.0 (71.6) (37.1)

PBT 362.0 592.7 (38.9) >100

Tax (174.6) (194.4) (10.2) >(100) MI (111.8) (210.2) (46.8) >(100)

Net Profit 75.6 188.1 (59.8) >100

Higher contribution from Celcom & lower losses Core Net Profit 218.4 124.7 75.2 (31.6) from ADS

Table 2: Key statistics YoY QoQ EBITDA breakdown (RMm) 1Q21 1Q20 chg chg (%) (%) Malaysia 645.9 514.0 25.6 (18.7) Indonesia 901.0 932.5 (3.4) 0.2 Bangladesh 385.0 383.3 0.4 4.6 Sri Lanka 284.8 278.2 2.4 (11.2) Nepal 224.1 261.0 (14.1) 2.9

Subscriber base ('000) 1Q20 2Q20 3Q20 4Q20 1Q21 Celcom Malaysia 7,982 8,028 8,399 8,677 8,995 XL Indonesia 55,488 55,674 56,883 57,889 56,018 Dialog Sri Lanka 14,953 15,080 15,329 16,288 16,405 Robi Bangladesh 49,718 47,977 50,126 50,901 51,942 Ncell Nepal 17,172 15,922 15,331 15,726 16,316 Source: Company, PublicInvest Research

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KEY FINANCIAL DATA

INCOME STATEMENT DATA FYE Dec (RM m) 2019A 2020A 2021F 2022F 2023F Revenue 24,583.3 24,203.2 25,353.1 25,879.4 26,318.6 Operating Profit 4,324.6 2,495.0 3,349.2 3,701.7 3,960.6 Jointly Controlled Entities and Associate Contribution (3.5) 18.7 20.0 21.0 22.1 Net Finance Costs (1,448.9) (1,342.5) (1,485.0) (1,605.0) (1,700.0) Pre-tax Profit 2,872.2 1,171.2 1,884.2 2,117.7 2,282.7 Taxation (1,057.1) (547.1) (565.3) (635.3) (684.8) Effective Tax Rate (%) 36.8 46.7 30.0 30.0 30.0 Minorities (357.5) (258.9) (362.6) (375.5) (386.1) Reported Net Profit 1,457.6 365.2 956.3 1,106.8 1,211.8

Growth Revenue (%) 2.9 -1.5 4.8 2.1 1.7 Operating Profit (%) -281.3 -42.3 34.2 10.5 7.0 Core Net Profit (%) -129.0 -74.9 161.8 15.7 9.5 Source: Company, PublicInvest Research estimates

BALANCE SHEET DATA FYE Dec (RM m) 2019A 2020A 2021F 2022F 2023F Fixed assets 25,641.8 24,495.6 23,891.9 23,463.3 22,958.9 Other long-term assets 31,375.3 31,501.5 31,601.5 31,701.5 31,801.5 Cash at bank 4,224.1 7,194.3 8,360.4 9,612.1 10,150.4 Other current assets 5,393.5 4,770.4 5,384.3 5,492.6 5,584.7 Total Assets 66,634.7 67,961.7 69,238.1 70,269.4 70,495.5

Short-term borrowings 7,631.8 2,971.5 3,500.0 4,000.0 4,000.0 9,194.5 14,773.9 15,000.0 15,000.0 15,000.0 Long-term borrowings Payables 12,291.3 12,005.8 12,246.7 12,533.5 12,783.8 Other liabilities 21,336.3 20,569.4 20,719.0 20,773.5 20,637.6 Total Liabilities 50,453.9 50,320.6 51,465.7 52,307.0 52,421.3 Shareholders’ Equity 16,180.8 17,641.1 17,772.4 17,962.5 18,074.1 Total Equity and Liabilities 66,634.7 67,961.7 69,238.1 70,269.4 70,495.5 Source: Company, PublicInvest Research estimates

PER SHARE DATA & RATIOS

FYE Dec 2019A 2020A 2021F 2022F 2023F Book Value Per Share 1.8 1.9 1.9 2.0 2.0 NTA Per Share -0.5 -0.3 -0.3 -0.3 -0.3 Gross debt/EBITDA (x) 1.6 1.7 1.8 1.8 1.8 DPS (sen) 9.0 7.0 9.0 10.0 12.0 Payout Ratio (%) 85.2 74.2 86.3 82.8 90.8 ROA (%) 1.4 1.3 1.4 1.6 1.7 ROE (%) 5.9 4.9 5.4 6.2 6.7 Source: Company, PublicInvest Research estimates

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RATING CLASSIFICATION

STOCKS

OUTPERFORM The stock return is expected to exceed a relevant benchmark’s total of 10% or higher over the next 12months.

NEUTRAL The stock return is expected to be within +/- 10% of a relevant benchmark’s return over the next 12 months.

UNDERPERFORM The stock return is expected to be below a relevant benchmark’s return by -10% over the next 12 months.

TRADING BUY The stock return is expected to exceed a relevant benchmark’s return by 5% or higher over the next 3 months but the underlying fundamentals are not strong enough to warrant an Outperform call.

TRADING SELL The stock return is expected to be below a relevant benchmark’s return by -5% or more over the next 3 months.

NOT RATED The stock is not within regular research coverage.

SECTOR

OVERWEIGHT The sector is expected to outperform a relevant benchmark over the next 12 months.

NEUTRAL The sector is expected to perform in line with a relevant benchmark over the next 12 months.

UNDERWEIGHT The sector is expected to underperform a relevant benchmark over the next 12 months.

DISCLAIMER

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