AXIATA: Despite Initial Miss, Core Profit Rises on Efficiency Efforts, Buy Rating Affirmed

A major telecommunications group reported a 9MFY25 core profit of RM378.0mn, which came in below market expectations, accounting for 57.3% and 68.4% of TA Securities’ and consensus full-year estimates, respectively. The shortfall was primarily attributed to higher-than-anticipated integration costs associated with its Indonesian operations. Despite this initial miss, the company demonstrated resilience with a significant rise in core profit supported by strategic cost management and lower finance expenses, leading TA Securities to reiterate its “BUY” recommendation.

Performance Review

On a year-on-year basis, the group’s 9MFY25 revenue saw an 8.3% decline to RM8,779mn, largely influenced by unfavourable foreign currency translation effects. Consequently, EBITDA decreased by 6.9% to RM4,022mn. However, on a constant-currency basis, revenue edged up 0.4%, bolstered by strong performances from its Dialog, Smart, and Boost segments. Dialog’s revenue benefited from the consolidation of Airtel Lanka, Smart saw growth from higher prepaid data revenue, and Boost recorded a substantial 49.1% surge driven by stronger interest income from its lending business.

Despite the challenges, core profit for 9MFY25 still rose 19.7% to RM378mn, primarily supported by lower net finance costs, even as profit contributions from associates were dampened by increased integration costs in XLSMART. Quarter-on-quarter, 3QFY25 revenue modestly fell 1.5% to RM2,920mn. Yet, core profit impressively jumped 114.8% to RM174.0mn, propelled by lower depreciation charges and reduced tax expenses. The group also continued its balance sheet optimisation efforts, with the net debt/EBITDA ratio improving to 2.6x from 2.8x in the prior quarter.

Future Outlook

Management outlined key strategic priorities, including progressing the XL-Smartfren integration in Indonesia and fostering synergies between Dialog and Airtel in Sri Lanka. The monetisation of its infrastructure business remains an ongoing initiative, with EDOTCO identified as a key monetisable asset and a strong candidate for potential divestment. These efforts are expected to streamline operations and unlock further value.

Valuation and Recommendation

Following a revision to earnings forecasts for FY25/FY26/FY27, TA Securities has adjusted its target price from RM3.09 to RM3.03. This new target price is based on a Sum-of-the-Parts (SOTP) valuation and incorporates a 3% ESG premium. The investment bank has maintained its “BUY” call on the stock, reflecting confidence in its long-term prospects despite short-term integration hurdles.