Axiata posts US$169mil profit in 1Q19

• Revenue improved to US$1.42 billion from US$1.37 billion previously
• Ebitda rose 7.7% y-o-y to RM2.2 billion for 1Q19

AXIATA Group Bhd posted one of its best quarterly results ever on May 28 led by strong revenue growth overseas and a one-time gain from the disposal of a stake in a telecommunications company in Singapore, as well as other non-core ventures.

The group posted a net profit of US$169.27 million (RM709 million) in the three-months ended March 31, 2019 (1Q19) compared with a loss of US$35 million (RM147 million) a year ago.

Revenue improved to US$1.42 billion (RM5.95 billion) from US$1.37 billion (RM5.75 billion) previously.

[US$1 = RM4.1838]

“We had one of our best quarters ever with an upsurge in headline profitability on the back of gains from our portfolio rationalisation exercises involving the M1 divestment and the carving out of our non-core digital ventures from our portfolio," president and group chief executive officer Jamaludin Ibrahim said in a statement.

Axiata had a strong head start for 2019, demonstrating continued strong underlying performance for 1Q19. The group’s revenue grew by 4.3%1 year-on-year (y-o-y) to RM5.9 billion mainly driven by growth from XL, Robi, edotco, Dialog, Smart and digital businesses.

Earnings Before Interest, Tax, Depreciation and Amortisation (Ebitda) rose 7.7% y-o-y to US$525.23 million (RM2.2 billion) for 1Q19 on the back of double-digit growth from XL, Dialog, Robi, Smart and edotco.

Normalised Profit After Tax and Minority Interests (Patami) for 1Q19 dipped 24.0% y-o-y to RM226 million impacted by Celcom and Ncell, depreciation and amortisation (D&A), finance costs and discontinued M1 share of profit. In terms of OpCo performance, Ebitda y-o-y grew faster than revenue for most OpCos.

Axiata’s cash balance grew to RM6.8 billion in 1Q19 up from RM5.1 billion in 2018 following the M1 divestment which resulted in an estimated RM1.65 billion cash gain. The Group’s balance sheet remained strong as gross debt/Ebitda improved to 2.21x2 (compared to 2.29x as at end 2018).

Patami in 1Q19 jumped more than 100% to RM709 million recovering from a loss of RM147 million in 1Q18, delivering the group one of its best quarters in terms of headline profitability.

This was mainly due to one-off gains from divestments of its stake in M1, which netted a RM1.65 billion cash proceeds and one-off gain of RM113 million.

Additionally, Patami for 1Q19 also improved as a result of the transfer of Axiata’s non-core Digital Ventures to a fund manager at a valuation of US$140 million which registered a disposal gain of RM302 million.

In 1Q19, the industry’s total mobile service revenue in Malaysia declined -3.6% y-o-y impacted by lower regulated mobile termination rate (MTR) and wholesale revenue. This negative growth led to a muted industry landscape for the quarter, which saw Celcom’s revenue dip by 7.4% to RM1.7 billion y-o-y, mainly as a result of reduced wholesale revenue.

However, against this backdrop, Celcom’s core mobile service revenue increased 2.3% y-o-y driven by strong postpaid growth of 7.1%.

Ebitda was up 25% y-o-y post adoption of MFRS 16, contributed by lower operating expenditure. In 1Q19, Celcom’s smartphone penetration rose by 5 ppt y-o-y to 80% while data subscribers as percentage of total subscribers was at 77% versus 71% a year ago, which contributed to the increase in total data usage by 57%.

In line with its strategy, Celcom continues to take leadership in 4G population coverage, which rose to 93% whilst 4G LTE-A coverage to 81% in 1Q19 compared to 88% and 76% respectively in 1Q18.

In 1Q19, two major milestones were recorded by the group’s digital arm, AD.

The first was the transfer of AD’s non-core digital assets (Digital Ventures) to a fund manager at a valuation of US$140 million, resulting in a RM302 million gain on disposal.

The second, was the entry of Mitsui & Co, Ltd as a strategic minority investor in AD, which subsequently established a pre-money enterprise value of US$500 million for the core digital businesses of AD which include Boost, a leading e-wallet service in Malaysia with a presence in Indonesia, ada (analytics.data.advertising), the largest independent digital agency in the region, and Apigate, an emerging global API platform provider.

This investment marks a validation point for Axiata’s digital and internet ventures journey which began five years ago, and AD hopes to further accelerate its three core businesses while still being focused on distinct financial innovations for consumers at the bottom of the pyramid, marrying data and creative content for brands, as well as enabling rapid growth and monetisation for partners on its platform.

Combined with the Digital Ventures transfer and pre-money equity valuation of AD’s core digital businesses in view of Mitsui’s investment, the entire portfolio of AD is therefore valued at US$640 million, compared to the net investment cost of US$244 million.

Fueled by strong growth across its footprint, edotco’s revenue in 1Q19 increased by 25% y-o-y to RM439 million whilst Adjusted Ebitda grew 46% y-o-y to RM244 million.

Tenancy ratios increased to 1.6x y-o-y in 1Q19 due to positive developments in Malaysia and Bangladesh, whilst the tower portfolio increased to 18,789 this quarter compared to 16,760 in 1Q18, driven by strong growth in Myanmar, Pakistan and Bangladesh.

Commenting on the 1Q19 results, Axiata president and group chief executive officer Jamaludin Ibrahim said “Our strengthened results this quarter demonstrate that we are serious about realising our ‘Shifting Gear’ initiatives, driven by a profit and cash focus. It is also encouraging to note the topline growth across our Triple Core business covering digital telcos, digital businesses and infrastructure.”

“We had one of our best quarters ever with an upsurge in headline profitability of RM709 million on the back of gains from our portfolio rationalisation exercises involving the M1 divestment and the carving out of our non-core Digital Ventures from our portfolio.

“The Group’s ROIC for 1Q19 improved to 6.2% and our cash position has grown from RM5.1 billion in 2018 to RM6.8 billion as of 1Q19. Our cost optimisation programme yielded RM262 million and is firmly on track to meet the full year target of RM1.2 billion.”

On the group’s business focus in view of the proposed merger between Axiata and Telenor’s Asian operations, Jamaludin said: “There will be a dedicated working team looking into the details of this project over the next three months, separate from the rest of the management team. As far as the Group is concerned, it is business as usual and achieving the 2019 targets would remain as key priorities for all operating units.”