AXIATA: Telco Group Reports Unexpected Quarterly Loss Amid Impairment Charges

A leading regional telecommunications group reported a headline net loss of RM66 million in the second quarter of financial year 2025 (2QFY25), a stark contrast to the net profit of RM4.3 million recorded in 2QFY24 from continuing operations. This significant reversal was primarily attributed to a substantial impairment of goodwill, amounting to RM329.6 million, related to its Indonesian infrastructure operation, Linknet, which was acquired in 2022.

Performance Review

Excluding the goodwill impairment and other exceptional items, the group’s core profit for the first half of FY25 (1HFY25) stood at RM206 million. This figure fell below both Public Investment Bank’s and consensus full-year estimates, representing only 35% and 33% respectively. While the group’s revenue was generally in line with forecasts, overall earnings were significantly lower due to weaker contributions from its infrastructure segment.

The 2QFY25 revenue from continuing operations decreased by 10.6% year-on-year. This decline was largely driven by reduced contributions from its Bangladesh operations and infrastructure entities, edotco and Linknet. Unfavourable foreign currency movements further exacerbated the revenue decline when translated to Ringgit. Bangladesh’s revenue fell by 16.4% amidst ongoing macroeconomic challenges, while edotco’s revenue dropped 15.5% due to the strengthening of the Ringgit. Linknet experienced a 25.4% decline in revenue following the business transfer of its residential segment to XLSMART, with a continued strategic shift towards becoming a wholesale fibre company.

Future Outlook and Strategic Initiatives

The group is reportedly exploring the potential sale of its 63%-owned subsidiary, edotco, in a deal estimated to be worth up to USD3 billion. This potential divestment, which has seen previous stake transfers (e.g., from Innovation Network Corporation of Japan to Khazanah in March 2025), could generate approximately RM8 billion for the group’s 63% stake. Such proceeds are expected to be strategically utilised to pare down its substantial borrowings, currently at RM17.7 billion, which would significantly improve its cost structure and overall profitability. Hypothetically, the target price could be adjusted to RM3.00 if the deal materialises. While the market has partially factored in the potential edotco divestment, the bank cautions on downside risks should the deal not materialise.

Rating and Target Price

Public Investment Bank has revised its SOTP-based target price for the group up to RM2.40, an increase from its previous RM2.28. However, considering the current operational challenges and future uncertainties, the bank maintains its Neutral recommendation on the stock. The group also declared a 5.0 sen dividend per share.