TELECOMMUNICATION

AXIATA GROUP
(AXIATA MK EQUITY, AXIA.KL) 16 Feb 2021

XL’s subscriber growth supports improving earnings

Company report BUY
Alex Goh (Maintained)
alexgoh@ambankgroup.com
03-2036 2280 Rationale for report: Company update

Investment Highlights
Price RM3.50
Fair Value RM4.50
52-week High/Low RM4.39/RM2.66  We maintain our BUY call on Axiata Group (Axiata) with an
unchanged sum-of-parts-based fair value of RM4.50/share,
Key Changes which implies an FY21F EV/EBITDA of 5x – 1 standard
Fair value  deviation below its 3-year average of 6x.
EPS 
 Axiata’s FY20F–FY22F earnings have been slightly lowered by
YE to Dec FY19 FY20F FY21F FY22F 3%–4% mainly from higher one-off depreciation adjustments
for the group’s 66.5%-owned XL Axiata (XL) FY20. This stems
Revenue (RM mil) 24,583.3 23,357.5 24,021.4 24,761.5
Core net profit (RM mil) 1,022.0 744.1 1,018.7 1,280.3
from XL’s FY20 normalised profit of IDR679bil coming in
FD Core EPS (sen) 11.2 8.1 11.1 14.0 below expectations – 8% below ours and 65% of consensus.
FD Core EPS growth (%) (15.0) (27.2) 36.9 25.7 As we had highlighted, our more conservative FY20 earnings
Consensus Net Profit (RM mil) - 783.0 1,047.1 1,246.3 for XL were already half of street’s.
DPS (sen) 9.5 9.5 9.5 9.5
PE (x) 31.4 43.1 31.5 25.0  The weak results stemmed mainly from one-off IFRS 16 lease
EV/EBITDA (x) 4.0 4.4 4.0 3.6 accounting adjustments which drove up depreciation charges
Div yield (%) 2.7 2.7 2.7 2.7
by 69% YoY to IDR12.5tril and net interest charges by 20%
ROE (%) 8.7 4.7 6.5 8.0
Net Gearing (%) 77.9 103.0 87.7 70.4 YoY to IDR2.2tril. However, XL’s pre-IFRS normalised net
profit of IDR852bil was 15% above our forecast but 56% below
Stock and Financial Data consensus. Hence, at the operating level, XL’s FY20
normalised EBITDA of IDR13.1tril (+31% YoY) was instead in
Shares Outstanding (million) 9,163.6 line with our and market’s expectation.
Market Cap (RM mil) 32,072.5
Book Value (RM/share) 1.77  XL’s 4QFY20 EBITDA slid 7% QoQ to IDR3.2tril due to a 4%
P/BV (x) 2.0 QoQ decline in service revenue as the prepaid segment’s
ROE (%) 8.7 average revenue per user (ARPU) decreased by IDR2K to
Net Gearing (%) 77.9
IDR33K, partly offset by subscribers increasing by 1mil to
Major Shareholders Khazanah (37.6%) 57.9mil. The higher depreciation charges and interest costs
EPF (17.7%) from IFRS 16 adoption caused XL’s 4QFY20 normalised net
profit to halve QoQ to IDR166bil.
Free Float 0.4
Avg Daily Value (RM mil) 18.3  The group’s net subscriber acquisitions continue to be driven
largely by the prepaid segment, as the postpaid users rose by
Price performance 3mth 6mth 12mth
only 10K QoQ to 1.2mil, accounting for 2% of subscribers.
Absolute (%) 4.5 10.1 (20.4) Pricing competition amid weak consumer spending power due
Relative (%) 3.4 6.5 (23.6) to the Covid-19 pandemic caused 4QFY20 data revenue to
slide 4% QoQ to IDR5.4tril, slightly dampening data service
7.0 2,000 revenue to 92.6% in 4QFY20 vs. 92.7% in 3QFY20, after rising
1,800 significantly from 88.7% in 4QFY19.
6.0
1,600
5.0 1,400
 Amid the merger plans between Indosat and PT Hutchison 3,
management expects XL’s FY21F revenue to trend in line with
1,200
4.0 the market’s low single-digit growth expectations with EBITDA
1,000
3.0 margins in the low end of 50%, similar to 50% in FY20.
800

2.0 600  However, XL’s FY21F capex is expected to be lower at IDR7tril

1.0
400 vs. IDR7.8tril last year, which should be easily funded
200 internally as the US$296mil sale of 2,782 towers has partly cut
0.0 0 net debt/EBITDA to 0.5x from 1.1x in 4QFY19. Amid the Covid-
Feb-16 Feb-17 Feb-18 Feb-19 Feb-20
19 pandemic, the group’s 4QFY20 tower footprint still
AXIATA MK FBMKLCI Index
increased by 2,380 sites or 2% QoQ to 144,978 sites mainly for
2G (+4% QoQ) and 4G (+2% QoQ).
 With XL accounting for 8% of Axiata’s SOP, we view the group
as a regional operator with excellent prospects of monetising
its multiple businesses. The stock currently trades at a
bargain FY21F EV/EBITDA of 4x vs. Maxis’ 13x.
Axiata Group 16 Feb 2021

EXHIBIT 1: XL AXIATA’S RESULTS SUMMARY & BREAKDOWN

IDRbil FY19 FY20 YoY (%) 4QFY19 3QFY20 4QFY20 QoQ (%) YoY (%)
Revenue 25,133 26,009 3.5 6,415 6,572 6,353 (3.3) (1.0)
Cost of sales (15,167) (12,949) (14.6) (3,807) (3,167) (3,188) 0.7 (16.3)
EBITDA 9,966 13,060 31.0 2,608 3,405 3,165 (7.0) 21.4
Depreciation (7,363) (12,455) 69.2 (1,954) (2,358) (5,013) >100 >100
EBIT 2,603 605 (76.7) 654 1,047 (1,848) (>100) (>100)
Net interest expense (2,069) (2,485) 20.1 (535) (600) (655) 9.1 22.4
Forex gain/(loss) (17) 8 >100 (8) (12) (3) (78.0) (65.9)
Others 627 2,018 >100 278 102 189 86.0 (31.9)
Pretax Profit 1,144 146 (87.2) 389 536 (2,317) (>100) (>100)
Tax (431) 225 >100 (175) (205) 613 >100 >100
Net profit/(loss) 713 372 (47.9) 214 331 (1,703) (>100) (>100)
Normalised net profit 719 679 (5.6) 214 331 166 (49.8) (22.4)

EBITDA margin 39.7% 50.2% 40.7% 51.8% 49.8%

EBIT margin 10.4% 2.3% 10.2% 15.9% -29.1%
Pretax margin 4.6% 0.6% 6.1% 8.2% -36.5%
Tax rate 37.7% -154.2% 45.0% 38.2% 26.5%
Normalised net margin 2.9% 2.6% 3.3% 5.0% 2.6%

Gross Revenue FY19 FY20 YoY (%) 4QFY19 3QFY20 4QFY20 QoQ (%) YoY (%)
Service Revenue 22,842 24,130 5.6 5,861 6,131 5,861 (4.4) 0.0
Data 20,254 22,202 9.6 5,313 5,684 5,430 (4.5) 2.2
Others 4,896 3,816 (22.1) 325 445 926 >100 >100
Gross Revenue 25,150 26,018 3.4 6,415 6,576 6,356 (3.3) (0.9)
Less: Discounts (18) (9) (49.1) (3) (4) (3) (21.7) (9.8)
Net Revenue 25,133 26,009 3.5 6,412 6,572 6,353 (3.3) (0.9)

Subscribers FY19 FY20 YoY (%) 4QFY19 3QFY20 4QFY20 QoQ YoY
Postpaid subs (000) 1,066 1,150 7.9 1,066 1,140 1,150 0.9 7.9
Prepaid subs (000) 55,630 56,740 2.0 55,630 55,740 56,740 1.8 2.0
Total 56,696 57,890 2.1 56,696 56,880 57,890 1.8 2.1

Postpaid ARPU (IDR 000) 110 111 0.9 109 110 110 0.0 0.9
Prepaid ARPU (IDR 000) 33 34 3.0 34 35 33 (5.7) (2.9)
Blended ARPU (IDR 000) 35 36 2.9 36 36 34 (5.6) (5.6)

Total BTS 130,217 144,978 11.3 130,217 142,598 144,978 1.7 11.3
2G 35,926 37,446 4.2 35,926 36,030 37,446 3.9 4.2
3G 54,027 53,235 (1.5) 54,027 53,513 53,235 (0.5) (1.5)
4G 40,264 54,297 34.9 40,264 53,055 54,297 2.3 34.9

Opex breakdown
Interconnection & other direct exp 1,495 1,116 (25.4) 350 269 251 (6.7) (28.3)
Salaries & employee benefit 1,279 1,274 (0.4) 325 341 322 (5.6) (0.9)
Sales & marketing exp 1,970 1,805 (8.4) 531 470 447 (4.9) (15.8)
Infra expenses 6,116 4,292 (29.8) 1,508 993 977 (1.6) (35.2)
Regulatory costs 3,783 4,133 9.3 978 1,025 1,101 7.4 12.6
Supplies & Overheads 523 329 (37.1) 112 71 90 26.8 (19.6)
Total 15,166 12,949 (14.6) 3,804 3,169 3,188 0.6 (16.2)

Source: XL Axiata

AmInvestment Bank Bhd 2

Axiata Group 16 Feb 2021

EXHIBIT 2: SUM-OF-PARTS BREAKDOWN

Forex Valuation Axiata Effective value Share
Operational companies Country rate Methodology (RMmil) Stake (%) (RMmil) %
Celcom Malaysia 1 DCF (WACC 7%, Terminal growth 2%) 20,953.1 100.0 20,953.1 35.8
XL Indonesia 3,456 Market Value 7,186.9 66.5 4,779.3 8.2
Dialog Sri Lanka 48 Market Value 2,077.5 83.3 1,731.0 3.0
Robi Axiata Bangladesh 21 Market Value 11,174.2 61.8 6,905.7 11.8
Smart Cambodia 993 5x FY20F EV/EBITDA 2,854.8 87.5 2,496.8 4.3
NCELL Nepal 26.9 5x FY20F EBITDA 5,428.2 80.0 4,342.5 7.4
edotco Malaysia 1 20x FY20F EBITDA 23,548.0 63.0 14,835.2 25.4
Axiata Digital Services 10% investment by Mitsui & Co 2,065.0 90.0 1,858.5
Pegasus 7 Ventures Transfer value to management co 578.2 100.0 578.2
Total Equity Value 58,480.4 100.0

Add Holding Company's Shareholders funds as at 31 Dec 2019 15,264.71

Less: Cost of subsidiaries and associates (20,801.35)

Total Sum-of-Parts 52,943.8

No of shares (mil) 8,816.9
Sum-of-parts (RM/share) 6.00
Holding company discount (%) 25

Fair Value (RM/share) 4.50

Source: AmInvestment Bank

EXHIBIT 3: PB BAND CHART EXHIBIT 4: PE BAND CHART

3.50 70.00

3.00 60.00

+1δ 50.00 +1δ

2.50
Avg 40.00
2.00
-1δ
30.00
Avg
1.50
20.00
1.00
10.00
-1δ
0.50
0.00

0.00 -10.00
Jan-17

Nov-17
Mar-17
May-17
Jul-17
Sep-17

Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21

-20.00

AmInvestment Bank Bhd 3

Axiata Group 16 Feb 2021

EXHIBIT 5: FINANCIAL DATA

Income Statement (RMmil, YE 31 Dec) FY18 FY19 FY20F FY21F FY22F

Revenue 23,885.8 24,583.3 23,357.5 24,021.4 24,761.5

EBITDA 11,003.0 11,032.4 10,990.0 11,541.2 12,226.3
Depreciation/Amortisation (7,644.8) (7,084.2) (7,381.4) (7,750.5) (8,138.0)
Operating income (EBIT) 3,358.2 3,948.1 3,608.6 3,790.7 4,088.3
Other income & associates (6,380.4) 432.1 17.8 9.4 13.7
Net interest (1,050.9) (1,508.0) (1,526.2) (1,755.1) (1,807.7)
Exceptional items - - - - -
Pretax profit (4,073.1) 2,872.2 2,100.2 2,045.1 2,294.3
Taxation (901.6) (1,057.1) (840.1) (613.5) (642.4)
Minorities/pref dividends 212.7 (357.5) (516.0) (412.8) (371.5)
Net profit (4,762.0) 1,457.6 744.1 1,018.7 1,280.3
Core net profit 1,190.0 1,022.0 744.1 1,018.7 1,280.3

Balance Sheet (RMmil, YE 31 Dec) FY18 FY19 FY20F FY21F FY22F

Fixed assets 27,399.0 25,819.4 29,827.8 29,790.0 30,018.6

Intangible assets 20,926.7 20,729.6 19,693.2 18,708.5 17,773.1
Other long-term assets 3,227.4 10,468.0 10,506.0 10,548.7 10,596.0
Total non-current assets 51,553.0 57,017.1 60,026.9 59,047.2 58,387.7
Cash & equivalent 5,071.4 4,224.1 2,408.3 6,519.1 10,992.8
Stock 219.1 154.3 102.4 105.3 108.5
Trade debtors 5,115.2 4,865.9 3,839.6 3,948.7 4,070.4
Other current assets 1,896.2 373.3 392.0 411.6 432.2
Total current assets 12,302.0 9,617.6 6,742.3 10,984.7 15,603.9
Trade creditors 12,484.4 12,291.3 10,238.9 10,529.9 10,854.4
Short-term borrowings 4,483.2 7,631.8 8,394.9 9,234.4 10,157.9
Other current liabilities 1,434.5 4,530.5 4,524.1 4,518.6 4,743.0
Total current liabilities 18,402.2 24,453.6 23,158.0 24,283.0 25,755.3
Long-term borrowings 14,646.6 9,194.5 10,113.9 11,125.3 12,237.9
Other long-term liabilities 7,591.6 10,766.6 11,304.9 11,870.2 12,463.7
Total long-term liabilities 22,238.2 19,961.1 21,418.9 22,995.5 24,701.6
Shareholders’ funds 17,476.8 16,180.8 15,637.2 15,785.4 16,195.2
Minority interests 5,737.9 6,039.2 6,555.2 6,968.1 7,339.6
BV/share (RM) 1.93 1.77 1.71 1.72 1.77

Cash Flow (RMmil, YE 31 Dec) FY18 FY19 FY20F FY21F FY22F

Pretax profit (4,073.1) 2,872.2 2,100.2 2,045.1 2,294.3

Depreciation/Amortisation 7,644.8 7,084.2 7,381.4 7,750.5 8,138.0
Net change in working capital (139.3) 188.0 (330.5) 179.0 199.5
Others (1,347.2) (2,368.4) (2,211.6) (2,227.5) (2,310.4)
Cash flow from operations 2,085.2 7,776.1 6,939.5 7,747.0 8,321.4
Capital expenditure (6,879.1) (6,711.2) (5,255.4) (6,005.4) (6,190.4)
Net investments & sale of fixed assets - - - - -
Others - - - - -
Cash flow from investing (6,879.1) (6,711.2) (5,255.4) (6,005.4) (6,190.4)
Debt raised/(repaid) 1,891.8 2,894.8 1,897.8 2,000.0 2,000.0
Equity raised/(repaid) - - - - -
Dividends paid (762.6) (861.7) (870.5) (870.5) (870.5)
Others - - - - -
Cash flow from financing 1,129.2 2,033.1 1,027.3 1,129.5 1,129.5
Net cash flow (3,664.6) 3,097.9 2,711.3 2,871.1 3,260.4
Net cash/(debt) b/f 744.5 (4,975.4) (3,150.0) (1,789.4) (625.7)
Net cash/(debt) c/f (2,920.1) (1,877.5) (438.7) 1,081.7 2,634.7

Key Ratios (YE 31 Dec) FY18 FY19 FY20F FY21F FY22F

Revenue growth (%) (2.1) 2.9 (5.0) 2.8 3.1

EBITDA growth (%) 1.6 0.3 (0.4) 5.0 5.9
Pretax margin (%) (17.1) 11.7 9.0 8.5 9.3
Net profit margin (%) (19.9) 5.9 3.2 4.2 5.2
Interest cover (x) 3.2 2.6 2.4 2.2 2.3
Effective tax rate (%) 22.1 36.8 40.0 30.0 28.0
Dividend payout (%) nm 59.7 117.0 85.5 68.0
Debtors turnover (days) 73 74 68 59 59
Stock turnover (days) 3 3 2 2 2
Creditors turnover (days) 192 184 176 158 158

Source: Company, AmInvestment Bank Bhd estimates

AmInvestment Bank Bhd 4

Axiata Group 16 Feb 2021

DISCLOSURE AND DISCLAIMER

This report is prepared for information purposes only and it is issued by AmInvestment Bank Berhad (“AmInvestment”)
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the time of issue. While all reasonable care has been taken to ensure that the stated facts are accurate and views are fair
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AmInvestment Bank Bhd 5