AXIATA: Persistent Goodwill Impairment Drives Group to Net Loss, Neutral Rating Maintained
| Investment Bank | PUBLIC INVESTMENT BANK |
|---|---|
| TP (Target Price) | RM2.40 (-7.3%) |
| Last Traded | RM2.59 |
| Recommendation | NEUTRAL |
The company reported a headline net loss of RM31 million in 3QFY25, a stark reversal from a net profit of RM867.4 million in the corresponding quarter of 3QFY24. This performance was primarily attributed to significant goodwill impairment, unfavourable foreign currency translation impact, and share of losses from an associate post-merger. Excluding these exceptional items, the 9MFY25 core profit of RM378 million was in line with the investment bank’s expectations but fell short of consensus estimates, representing 68% of the full-year forecast.
Key Factors & Challenges
A significant contributing factor to the net loss was the impairment of goodwill of Linknet, the infrastructure operation in Indonesia, amounting to RM213.4 million. This marked the second such impairment during the financial year. Linknet’s operational performance continues to face challenges, including higher customer churn rates, slower rollout of home connectivity services, and intense competition within the retail segment. Furthermore, the group was adversely affected by foreign exchange losses during the quarter, a contrast to the significant forex gains recorded in 3QFY24. The completion of a merger between XL and Smartfren also led to a recognition of share of losses from XLSMART, driven by integration costs and accelerated asset depreciation.
On the revenue front, continuing operations saw a 4.7% year-on-year decline in 3QFY25, primarily due to the unfavourable foreign currency translation impact resulting from the strengthening of the Ringgit against the currencies of its operating companies. Despite this, some operating companies in Sri Lanka, Cambodia, and Linknet recorded quarter-on-quarter revenue growth of 3.5%, 1.5%, and 6.8%, respectively.
Future Outlook
While the market continues to anticipate and price in potential monetisation of assets, the investment bank holds the view that some of the company’s strategic acquisitions, notably Linknet, have proven more value-dilutive than value-accretive. The acquisition of Linknet in 2022, intended to expand geographical footprint and enhance fixed broadband services in Indonesia, has been a drag on the group’s profitability and increased borrowing. The investment bank anticipates that headline numbers will remain subdued due to the strength of the Ringgit against its operating company currencies.
Although the company’s net debt to EBITDA remains comfortable at approximately 2.6x, the disposal of certain low-performing or loss-generating assets is expected. Such disposals could potentially boost earnings in the long run, though they might entail a one-time loss on disposal. Given these dynamics, PUBLIC INVESTMENT BANK has maintained its NEUTRAL rating on the stock with a target price of RM2.40, implying a -7.3% downside from the last traded price.
