Results Note

Earnings & Valuation Summary

FYE 31 Dec 2018 2019 2020E 2021E 2022E Revenue (RMm) 23,885.8 24,583.3 23,967.3 24,239.7 24,698.5 EBITDA (RMm) 7,741.7 10,839.9 10,747.8 11,110.7 11,431.1 Pretax profit (RMm) -4,345.7 2,872.2 2,249.3 2,365.6 2,558.5 Net profit (RMm) -5,034.6 1,457.6 863.8 996.2 1,104.3 EPS (sen) -55.5 15.9 9.4 10.9 12.1 PER (x) -6.7 23.5 39.6 34.3 31.0 Core net profit (RMm) -1,102.4 959.7 788.9 996.2 1,104.3 Core EPS (sen) -12.2 10.5 8.6 10.9 12.1 Core EPS growth (%) -246.8 -186.2 -17.8 26.3 10.9 Core PER (x) -30.7 35.6 43.3 34.3 31.0 Net DPS (sen) 9.5 9.5 8.0 9.2 10.2 Dividend Yield (%) 2.5 2.5 2.1 2.5 2.7 EV/EBITDA 6.2 5.8 5.8 5.7 5.5 Chg in EPS (%) +73.5 +27.7 +16.2 Affin/Consensus (x) 1.2 1.1 1.0 Source: Company, Affin Hwang estimates

RM3.73 @ 27 November 2020

Share price performance

1M 3M 12M Absolute (%) 31.3 19.2 -12.3 Rel KLCI (%) 22.6 15.3 -13.4

BUY HOLD SELL

Consensus 13 13 1 Source: Bloomberg

Stock Data

Sector Telecoms

Issued shares (m) 9,169.5

Mkt cap (RMm)/(US$m) 34,202/8,405

Avg daily vol - 6mth (m) 4.1

52-wk range (RM) 2.66-4.75

Est free float 23.7%

Stock Beta 0.97

Net cash/(debt) (RMm) (19,873)

ROE (CY21E) 6.1%

Derivatives No

Shariah Compliant Yes

Key Shareholders

Khazanah 36.8%

EPF 17.7%

PNB 14.7% Source: Affin Hwang, Bloomberg

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Nov-17 Mar-18 Jul-18 Nov-18 Mar-19 Jul-19 Nov-19 Mar-20 Jul-20 Nov-20

(RM)

Isaac Chow

T (603) 2146 7536

E Isaac.chow@affinhwang.com

Axiata Group Berhad (AXIATA MK)

HOLD (maintain) Price Target: RM3.95 Up/Downside: 5.9% Previous Target (Rating): RM3.15 (HOLD)

The calm after the storm

Strong 3Q20 core net profit of RM374m (+47% yoy), driven by rebound in

revenue, lower depreciation costs, reduced losses from digital business

and decline in provision for bad debts / staff incentive programmes.

3Q20 results beat consensus and our expectations on strong revenue

recovery and some reversal of provisions. We do not expect Axiata to

replicate the strong results in the near term.

We raise our 2020-22E EPS forecasts by 16-74% but maintain our HOLD

rating with a higher price target of RM3.95. After rebounding by 31% mom,

we believe Axiata’s share price has priced-in the strong earnings recovery.

Strong 3Q20 core profit of RM374m (+689% qoq, +47% yoy)

Axiata reported a strong set of results driven by a rebound in revenue across all

countries, lower depreciation, lower losses from digital business, reversal of provision

for incentive programmes and decline in bad-debt provisions. Celcom and Dialog

were the star performers, reporting 24% and 26% qoq recovery in EBITDA on higher

revenue and improved profit margins. Meanwhile Ncell also staged a strong

sequential earnings recovery, but its 3Q20 EBITDA of RM218m (+41% qoq) was still

27% lower yoy due to the prolonged lockdown in Nepal and the business challenges

arising from spectrum constraints.

Earnings were above expectations, but difficult to replicate in the near term

Cumulatively, Axiata’s 9M20 core net profit came in at RM546m (-21% yoy). The

earnings were above the market and our expectations – Axiata’s 9M20 core net profit

accounted for 84% of street and 120% of our full-year earnings forecasts. The

earnings beat was due to stronger-than-expected revenue recovery in the South Asia

markets (Bangladesh and Sri Lanka), lower depreciation and higher profit margin

partly attributable to the decline in bad-debt provisions (Celcom and Dialog) and

reversal for provisions for incentive reward programmes (Celcom). Broadly, the

strong 3Q20 earnings are partly attributable to the overprovisioning in the prior

quarter. Similar to the bad quarter preceding it, we do not expect Axiata to repeat the

smashing 3Q20 results in the near term.

OpCo’s 3Q20 results overview

- Celcom: 3Q20 EBITDA rebounded by 24% qoq to RM710m (+11% yoy) on

higher service revenue (driven by 339k increase in number of prepaid subs),

lower staff costs (reversal of provisions) and lower provisions for bad debts;

30 November 2020

“Strong 3Q20 earnings driven by revenue recovery across all

countries, lower depreciation, staff cost and provision for bad debts”

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- XL: Higher 3Q20 EBITDA (+1% yoy / +1% qoq). Stiff competition has supressed

its revenue and EBITDA growth;

- Ncell: 3Q20 EBITDA rebounded by 41% qoq but remained lower yoy due to

prolonged lockdown and business challenge arising from spectrum constraint;

- Robi: 3Q20 EBITDA slipped by 13% qoq (+11% yoy) due to operating costs

(network, direct and manpower costs);

- Dialog: Higher 3Q20 EBITDA of RM309m (+26% qoq / +11% yoy) due to the

easing of lockdown and reversal of bad-debt provisions;

- Smart: 3Q20 EBITDA grew by 4% qoq (+4% yoy) on the back of higher revenue.

Management guided for low single-digit decline in 2020 revenue and EBITDA

In spite of the stellar 3Q20 results (9M20 EBITDA grew by 1.8% yoy), management

is guiding for a low single-digit decline in 2020 revenue and EBITDA. Among the

challenges (risks) are: (i) the intensifying competition in Indonesia and the

government’s data-subsidy programme; (ii) reimplementation of the CMCO in

Malaysia and curfews in Sri Lanka; (iii) further delays for Ncell’s spectrum allocation;

(iv) bad debt provision for edotco; and (v) weak economic growth may affect

consumer affordability / spending.

Raising 2020-22E earnings forecasts by 16-74%

We raise Axiata’s 2020-22E earnings forecasts by 16-74% after incorporating: (i) the

strong 9M20 results; (ii) higher revenue for the Robi and Dialog, (iii) better profit

margin for Celcom; and (iv) lower earnings growth for Ncell. We are raising our

SOTP-derived 12-month price target to RM3.95 (from RM3.15) after incorporating

the earnings forecasts, lowering our SOTP discount to 15% (from 20%) and

increasing the valuation multiples for Robi, Dialog and Smart in view of the improving

economy and business conditions.

Maintain HOLD

Notwithstanding our earnings and price target upgrade, we maintain our HOLD rating

on Axiata. Axiata’s share price has rebounded by 31% mom and outperformed the

KLCI by 23%. The strong recovery in its share price has largely reflected the rapid

improvement in its operating environment (from the challenging 2Q20). At 34x 2021E

PER, the risk-reward proposition looks balanced. Upside risks: stronger-than-

expected quarterly earnings and value accretive M&As. Downside risks include major

earnings disappointments, unfavourable government policy / tax changes and higher

competition in key markets.

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Fig 1: Results Comparison

FYE Dec (RMm) 3Q19 2Q20 3Q20 QoQ YoY 9M19 9M20 YoY Comments

% chg % chg % chg

Revenue 6,213 5,792 6,112 5.5 -1.6 18,316 17,941 -2.1 9M20 vs 9M19

Celcom 1,622 1,437 1,572 9.4 -3.1 4,925 4,547 -7.7 Lower revenue due to lower prepaid revenue from subscribers loss and MCO impact in 2Q20

XL 1,887 1,886 1,913 1.4 1.4 5,393 5,677 5.3 Strong data growth and higher APRU (+5.9% yoy)

Robi 926 896 947 5.7 2.3 2,733 2,795 2.3 Strong data growth of 25% has more than offset lower voice revenue

Dialog 665 657 689 4.9 3.7 2,010 1,997 -0.7 Lower revenue due to the impact of Covid-19 lockdown and concessions offered to subscribers

Ncell 489 315 349 10.5 -28.6 1,506 1,107 -26.5 Steep revenue decline due to shutdown of distribution during the Covid-19 lockdown

Smart 329 310 326 4.9 -1.1 950 953 0.4

Others 296 292 317 8.5 7.0 799 864 8.1

Op costs -3,349 -3,219 -3,229 0.3 -3.6 -10,252 -9,728 -5.1

EBITDA 2,864 2,574 2,883 12.0 0.7 8,065 8,213 1.8

EBITDA margin (%)

46.1 44.4 47.2 2.7 ppt

1.1 ppt

44.0 45.8 1.8 ppt

High 3Q20 EBITDA margin of 47% driven by higher revenue, lower provisions for bad debts and lower staff cost at Celcom.

Depn and amort -1,846 -1,842 -1,762 -4.3 -4.5 -5,196 -5,453 4.9 Lower 3Q20 depreciation due to reduction in capex.

EBIT 1,018 731 1,121 53.3 10.1 2,869 2,760 -3.8

Int expense -435 -427 -429 0.6 -1.3 -1,309 -1,283 -2.0

Int and other inc 66 48 47 -2.5 -28.8 177 137 -22.6

Associates 1 3 7 145.8 >100 -3 16 >100

Exceptional items

-76 33 -21 nm nm 432 75 nm

Pretax 574 388 724 86.8 26.3 2,166 1,705 -21.3

Tax -267 -231 -257 11.0 -3.7 -755 -683 -9.6

Tax rate (%) 46.5 59.6 35.4 -24.2 ppt

-11.0 ppt

34.9 40.0 5.1 ppt

MI -128 -76 -115 50.0 -10.3 -286 -401 40.3

Net profit 179 80 353 >100 96.9 1,125 621 -44.8

EPS (sen) 2.0 0.9 3.9 >100 96.9 12.2 6.8 -44.2

Core net profit 255 47 374 >100 46.6 693 546 -21.2 Above market and our expectations.

Source: Affin Hwang, Company

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Important Disclosures and Disclaimer

Equity Rating Structure and Definitions

BUY Total return is expected to exceed +10% over a 12-month period

HOLD Total return is expected to be between -5% and +10% over a 12-month period

SELL Total return is expected to be below -5% over a 12-month period

NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation

The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months.

OVERWEIGHT Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months

NEUTRAL Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months

UNDERWEIGHT Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months

This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (“the Company”) based on sources believed to be reliable and is not to be taken in substitution for the exercise of your judgment. You should obtain independent financial, legal, tax or such other professional advice, when making your independent appraisal, assessment, review and evaluation of the company/entity covered in this report, and the extent of the risk involved in doing so, before investing or participating in any of the securities or investment strategies or transactions discussed in this report. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (expressed or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. Facts, information, estimates, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business units within the Company, including investment banking personnel and the same are subject to change without notice. Reports issued by the Company, are prepared in accordance with the Company’s policies for managing conflicts of interest. Under no circumstances shall the Company, be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect or consequential losses, loss of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered in this report. Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any securities. The Company its directors, its employees and their respective associates may have positions or financial interest in the securities mentioned therein. The Company, its directors, its employees and their respective associates may further act as market maker, may have assumed an underwriting commitment, deal with such securities, may also perform or seek to perform investment banking services, advisory and other services relating to the subject company/entity, and may also make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. The Company, its directors, its employees and their respective associates, may provide, or have provided in the past 12 months investment banking, corporate finance or other services and may receive, or may have received compensation for the services provided from the subject company/entity covered in this report. No part of the research analyst’s compensation or benefit was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Employees of the Company may serve as a board member of the subject company/entity covered in this report. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. This report, or any portion thereof may not be reprinted, sold or redistributed without the written consent of the Company. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389-U) A Participating Organisation of Bursa Malaysia Securities Berhad 22nd Floor, Menara Boustead, 69, Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia. T : + 603 2142 3700 F : + 603 2146 7630 research@affinhwang.com www.affinhwang.com