Axiata Group Berhad (AXIATA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Axiata's Third Quarter Results briefing. Today, we have present with us Vivek Sood, Group CEO of Axiata; Nik Rizal Kamil, Group CFO of Axiata; as well as representatives from our operating companies. As usual, there will be a short presentation followed by a Q&A session. So without further ado, let me hand over the conference to Vivek.

Thank you, Clare. Pleasure to brief the quarter 3 results for 2025. I'll spend some time on our achievement against the 5*5 Strategy, which we rolled out 2 years back. And then I'll hand over to Nik to cover the financial numbers and then get back in terms of what -- where are we on our guidance as well as what are the risks and opportunities as we see. Before I get into that details, I think it's fair to understand the company's underlying performance does get impacted by one-off items. So I think it will be good for us to also take you through the results underlying as well as what are the reported numbers to avoid any complexity on understanding the numbers. If you remember, the 5*5 Strategy was focused on 5 vectors of value creation and 5 the strategy items, which -- operational performance items which are there. One of them was very clearly impacting our balance sheet. As you know, when we set up this strategy, we had around MYR 11 billion net debt at the holding company level, which gradually we've been bringing it down, and we are now at around MYR 7.2 billion as the debt with further intentions of further bringing it down. Having said that, that's basically resulted in us -- our balance sheet improving to around 2.6x net debt-to-EBITDA from, if I remember, back in 2023, it was around 3.3x net debt-to-EBITDA. And that's coming not just purely from paring down the holding company debt, but also the effect of the efforts being made at the various countries' operations of us. For example, Smart sits with around USD 240 million net cash. Robi U.S. dollar has been completely paid down. They're expecting the borrowings to be back to 0 by the end of this year. And also, there's been a reduction in the Dialog debt. Also, in addition to that, we've seen cash generated by EDOTCO being used for paring down some of their debt. They paid down around close to the MYR 100 million Sukuk amount during the year. We've also been able to manage the liabilities on our long-term bonds by buying back some of those bonds during this year. We did that also earlier -- during last year, too. So that's basically -- Directionally, our balance sheet looks much stronger than what we have earlier stated. If I go to the next item on our strategy, which is really around the frontier market performance, I think if you look at the results, all 3 frontier markets, which is Bangladesh, Robi, Dialog as well as Smart, have done well in their overall performance. Bangladesh did get impacted because of the continuing macro pressures and also the intensity of competition during the last quarter. Also, I think it's good to remember that previous quarter, when you look at quarter-to-quarter performance, previous quarter, we got the benefit of 2 Eid and the performance here we are looking at relative to that. Having said that, I think Robi has been doing extremely well on cost side and improving their profit margins by paring down debt as well as lowering the finance costs. So we've seen a fairly significant growth in the profit numbers coming out of Robi. And also, I must say that Robi relative to the market has been performing better. Dialog has been a very great success story after the merger we did last year in June with Airtel. We've seen strong growth in mobile business. Also supported by market, ARPUs seen improving. We've also seen the synergies coming out of the merger, which we did with Airtel, and also disciplined cost management, realizing profit growth of greater than 100%. I mean core revenue grew year-on-year by nearly 18% and also the fact that this has resulted in a fairly strong cash flow generation for Dialog. Smart Cambodia continues to do well with prepaid supported by growth in ARPU as well as subscribers and also a nearly 17% growth in the enterprise segment, coupled with the cost savings has helped improve the bottom line of the frontier markets. So I would say frontier markets are well financially strong, as well as performance-wise, they've been doing a reasonably good job, which is seen from the results in quarter 3. The merger, which we did in April in Indonesia between XL and Smartfren, I think, delivers -- continue to deliver synergies in line with what was projected. And also, we are seeing market structure improving, with market ARPUs seen growing by nearly 10% quarter-on-quarter for us. And also the synergies, which we had communicated earlier, would deliver $300 million to $400 million synergies. Post-integration, we should end this year by nearly between USD 150 million to USD 200 million merger synergies to be achieved. I'm happy to say the integration is in line with our plan. In terms of realization of benefits, we are ahead of what was planned by us. So a strong integration as well as strong outcome coming from the Indonesian merger, which we did earlier this year. Infra business, I think we've said we are -- one of the strategies, which we have put in place early this year, was to look at value elimination and monetization of our non-telco businesses. I think we are progressing on our monetization efforts on infra business. I will not be able to share much on where we stand on that, but I think it's -- I must say that we are progressing in the right direction. EDOTCO continues to deliver strong EBITDA margin of 73.4% and also have a strong order book in-hand in various markets. Specific mention, I would say, of the Philippines as well as Pakistan market, which has been doing well in terms of getting new orders, as well as we are seeing strong organic growth coming from the other markets. We've seen around [ 890-odd million ] built-to-suits and around 1,500 colos during this particular quarter. EDOTCO remains strong in balance sheet with net debt-to-EBITDA at 3.2x, much below what was earlier, and they've been able to pay down around MYR 600 million of debt. Link Net, I think we -- while the fiber business has stabilized and we've seen quarter-on-quarter improvement in revenue in Link Net; however, given the uncertainty around the fiber broadband connects and the intensity of competition in Indonesia, the management as well the Board has agreed to take an impairment of around MYR 167 million in this particular quarter, which does take the total impairment of goodwill for the year so far around MYR 397 million. Having said that, I think they are going beyond just the XL orders -- XLS orders to build home passes. They've built around 430,000 home passes for non-XLS customers, which should help in delivering further revenue growth going forward. So I think one of the key focus for us has been delivering operating free cash flows across markets. And that does result in a fairly strong flow of dividend for us. During the year so far, we've got around MYR 1.2 billion dividend upstream by the operating companies coming from the frontier markets, around MYR 250 million from Dialog, around MYR 140 million from Robi and around MYR 137 million from Smart. We've also got dividends coming in from CelcomDigi of around MYR 435 million and around MYR 170 million dividend, which we got earlier in the year from XL. This was pre-merger, but we also expect some special dividend coming in quarter 4. So ability to generate cash as well as upstream that across our working -- the group has been a good progress for us. So with that, I'll hand over to Nik to take you through. I think it's very important from a results standpoint not to look at just the consolidated, but also look at how the operating companies are performing. So I'll hand over to Nik to take you through the details.

Sure. Thank you, Vivek. [Foreign Language], and good afternoon, everyone. I will take us through the 9 months financial performance. Starting off on revenue. The first 9 months of the year, we recorded a revenue of MYR 8.8 billion. On a year-on-year basis, this was 8.3% down and 1.5% down quarter-on-quarter. This is mainly due to the ForEx translation due to the strengthening of the ringgit against the -- our OpCo currencies. At constant currency, keeping the currency at the same level, year-on-year showed a marginally higher revenue of 0.4%, and this is mainly due to Dialog and Smart, which recorded good results and positive growth. On EBITDA, we recorded MYR 4 billion for the first 9 months of the year, 6.9% down year-on-year, again, mainly due to the ForEx translation. At constant currency, it was 3.2% up, which was contributed by most OpCos, primarily in Dialog from the Dialog and Airtel merger. Quarter-on-quarter, on a reported basis, it was 5.4% lower and mainly in all OpCos, except for Dialog, Boost and ADA. EBIT, we recorded MYR 1.04 billion, 26.5% lower year-on-year, mainly due to the lower revenue and EBITDA, as I had alluded to earlier, but also mainly -- also driven by the Link Net impairment that we took in quarter 2 and also in quarter 3. Excluding the impairment, our year-to-date EBIT stood at MYR 1.59 billion, which is 11.8% higher on a year-on-year basis. Quarter-on-quarter, it was up 12%, mainly due to the lower Link Net impairment in quarter 3 compared to quarter 2. For our joint controlled entities, share of results, for the first 9 months, we recorded MYR 143 million. For CDB, stable performance with contribution up by 3.5% to MYR 359 million from MYR 347 million in the same period last year. For XLSMART share of results for year-to-date 2025, it was minus MYR 217 million, mainly due to the merger integration costs, which is expected. PATAMI, on a combined basis, we recorded MYR 403 million and combined includes the discontinued operations from XL Axiata and also EDOTCO Myanmar. On a continuing basis, for UPATAMI, we recorded MYR 378 million, which is 19.7% higher year-on-year and 15.4% higher quarter-on-quarter. The year-to-date PATAMI reflects the underlying performance of our OpCos, as alluded to by Vivek, and based on constant currency and also adjusted for one-off items. This is mainly driven by Dialog, EDOTCO and Robi. Quarter-on-quarter, it was mainly driven by EDOTCO and Boost. I will now take us through the highlights from some of our basically major OpCos. For Robi, as indicated by Vivek, the macroeconomic pressures continue to persist in Bangladesh, which impacted revenue, whereby the year-to-date revenue was 2.5% lower. However, cost efficiencies measures, including lower dealer commissions, sustained EBITDA, while EBIT also benefited from lower depreciation and amortization. Year-to-date PATAMI was 55.2% higher to BDT 6.3 billion, supported by lower finance costs from USD loan repayments and also lower ForEx losses. Quarter-on-quarter, PATAMI was 5.9% lower due to the revenue shortfall, as in quarter 2, we were lifted by the 2 Eid festivals and quarter 3 also was affected by the extended monsoon that affected revenue. Next, on Dialog, year-to-date revenue grew by 6.2%, driven by an increase in the mobile segment, which can be decomposed to 19% organic growth supported by yield correction measures and also improving ARPUs and a further 16% from Airtel consolidation. And this is in spite of us scaling down the hubbing business, which was a low-margin business, and that was a conscious business decision that was made for Dialog. EBITDA grew 40% year-on-year, underpinned by the disciplined cost management, which translated into more than 100% year-to-date growth in both EBIT and PATAMI. For Smart, year-to-date revenue grew 3.8%, supported by growth in the prepaid segment through higher ARPU and also revenue-generating base as well as a strong performance in enterprise that showed double-digit growth. Strategic savings from the backbone project and the optimized sales and marketing spend also contributed to the EBITDA growth of 6.8%, which then drove overall bottom line improvement. For Link Net, the year-to-date performance continues to reflect the strategic shift in Link Net's business model from ServeCo to a wholesale fiber business. Year-to-date home passes, though, reached 4.4 million homes. On a quarter-on-quarter basis, we started to see offshoots of recovery with revenue growing 6.8%, supported by revenue adjustment in the broadcasting services. However, quarter-on-quarter EBITDA declined 0.7%, and EBIT was lower by 3.5%, mainly due to some customer bad debt provision. For EDOTCO, as alluded to by Vivek earlier, strong tenancy growth in Bangladesh, Pakistan and Cambodia. However, year-to-date revenue registered a decline, mainly again due to ForEx translation impact due to the strengthening of ringgit against the EDOTCO operating company currencies, in particular Bangladesh, and one-off impacts in year-to-date 2024 that was no longer present in 2025 around price benchmarking. There was also strong performance across other major entities on a constant ForEx basis. EBIT was 16.9% higher from lower depreciation and amortization due to the extension of the life of the towers at EDOTCO. This was put in place from the second half of last year. Debt reduction, as mentioned by Vivek earlier, was able to be performed by EDOTCO. Over MYR 600 million of debt was reduced in the quarter, mainly utilizing the sale proceeds from the sale of EDOTCO Myanmar. And this has lowered the net debt-to-EBITDA to 3.2x, and also further, year-to-date PATAMI was up by 7.1%. Finally, I will take us through our balance sheet as at 30th September 2025. On a group cash basis, we closed the quarter at MYR 3.676 billion. This quarter-on-quarter decline was mainly due to the debt repayments, and also the CapEx were mainly funded by the internal liquidity. Just to -- basically as a recap, in quarter 2, we had received the proceeds -- the disposal proceeds from the Indonesia merger, and this was basically utilized to pay down debt in quarter 3. As you can see from group borrowings, at the end of September, we were down to MYR 15.8 billion, 29.1% lower year-on-year and 11% lower quarter-on-quarter. This is mainly due to the debt paydown at HoldCo via the Euro Medium Term Notes buyback via our liquidity management program. EDOTCO, which I had indicated earlier, and also cumulatively, the frontier markets also reduced their debt. AOFCF was at MYR 1.5 billion, up 6.1% year-on-year and more than 100% quarter-on-quarter, mainly due to the lower CapEx at Robi and Link Net. HoldCo cash, as you can see, is 42.5% lower quarter-on-quarter, closed at MYR 787 million, again, mainly used to pay down the debt in quarter 3. HoldCo borrowings showed a 14.6% reduction year-on-year and 8.9% reduction quarter-on-quarter, largely due to the EMTN buyback. And just for information, since we launched the Axiata 5*5 Strategy at the end of 2023, HoldCo debt has gone down by approximately 1/3 or roughly about MYR 4 billion. As such, at the end of quarter 3 or end of September, our net debt-to-EBITDA continues to improve to 2.61x compared to 2.76x at the end of quarter 2, which is driven by the deleveraging across the group, which overall resulted on a quarter-on-quarter MYR 1.9 billion debt reduction. With that, I will pass you back to Vivek to -- on our headline KPIs.

Thanks, Nik. Just on the headline KPI, if you recall, we had said EBIT growth of high-single digit. I think we are maintaining that expectation to achieve with a bias on better performance. Having said that, this is based on the baseline of MYR 1.9 billion, which was on -- which is based on continuing operations and excludes the XL and the EDOTCO Myanmar in the baseline. So we do see us meeting or exceeding the headline KPI. Opportunities, I think we are seeing positive signs on market repair across our footprint. I mean we talked about good traction in Indonesia. I talked about Sri Lanka. The ARPU is increasing, and we've also seen that happening in Bangladesh. So that's a positive trend. And we believe that this trend continues and more likely than not is because of the fact that markets are now fully consolidated. I mean we have Bangladesh, basically 3-player market. Sri Lanka is kind of 2.5-player market. Indonesia is 3-player market. Cambodia is again a 3-player market. So it's fairly consolidated markets, and we are seeing a good traction of that consolidation resulting in market repair. I think one of the challenges which we see is really the CelcomDigi, where the market is getting far more fragmented than consolidation happening in this market. So I think that's positive development. We're also continuing to focus on cost excellence and also looking at capital allocation or investments into CapEx based on real time than really investing long upfront and which you would have seen resulting in far stronger CapEx yields as well as the CapEx-to-EBITDA ratios. We're also positive around the synergies, which would come out of the joint controlled entities. I think CelcomDigi should see the integration completed by the end of next year or early 2027, and we should then see the full benefits of integration. XLSMART, I think, as I said earlier, we are still tracking to deliver USD 300 million to USD 400 million synergies on completion of the integration process. And you've seen the impact of Dialog, Airtel synergies with EBITDA growth happening at 40% year-on-year. And that, I think, is something which you will see continuing impact on our margin lines. Monetization of infra assets, as I said, we are progressing well on that direction. I will not be able to share much yet. However, at appropriate time, we will provide all the details regarding this activity, which we are carrying on. Also, the paring down of debt, which has been one of the strategic intent is a positive development that does allow transparent flow of earnings to our shareholders from the dividend, which we get from our subsidiaries and associates. As I said earlier, MYR 1.2 billion is what we got this year, and I think that's a steady number we can obtain over the years to come based on our clear margin improvement in these markets there. Risk, 5G wholesale network continues to be a little unknown at this point in time, but developments are in the right direction. But what's the ultimate outcome of that will determine where we stand as far as the 5G investments are concerned in Malaysia. I think we are going ahead with investments on 5G in other markets with Cambodia, Sri Lanka as well as at appropriate time in Indonesia and Bangladesh. So I think monetization of that investment would be a key consideration. Having said that, I think market being consolidated should see overall market structure improvement, helping monetization -- overall monetization capabilities. Geopolitical macro risk continues. I mean we would expect elections coming in Bangladesh next year. Having said that, I think we are seeing markets fairly stable now, which had gone through a fairly rough period when it came to the macro situation. Sri Lanka, Bangladesh are much more stable now than what we saw a year back. And I think the whole efforts around our value elimination, monetization strategy while progressing well, but does have risks depending on where the appetite exists on these particular assets. So with that, I'll hand over back to Clare for Q&A.

Okay. Thank you, Vivek and Nik. So we move on to the Q&A session. I would like to highlight that we also have representatives online with us today, including from EDOTCO, from XLS, from Robi as well as from Link Net on the call, if you have any questions you would like to direct your questions to. [Operator Instructions] Let's start off with Ranjan. I see Ranjan has his hand up for the first question. Let's open the line for Ranjan from JPMorgan.

Two questions from my side. I believe you mentioned something about a special dividend in the fourth quarter. If you can please elaborate on that. And the second is, if I look at EDOTCO, the tenancy ratios and overall tenancies have declined in Malaysia. If you can help us understand that as well.

The special dividend was in the context of the XLSMART. It's not from Axiata. In the context, you will probably have heard of recent EGM, which did approve the special dividend to be declared by XLSMART. And that's essentially coming out of -- if you recall, there was by the -- what is called the shares of the -- those who dissented were bought by the company at the time of merger. And now those shares have been actually -- part of it has been sold and that money has been declared as special dividend to the shareholders. So it's XLS-specific item. And the second...

The second question was basically on EDOTCO.

EDOTCO Malaysia tenancy ratio. So maybe we have someone from EDOTCO.

Yes. So I think we do have Annis online from EDOTCO. Perhaps, Annis, you can help take that question, the decline in tenancy ratio in Malaysia on a Q-on-Q basis. Okay. Never mind. Maybe there's a little bit of IT glitch over here. Let's circle back and then we'll come back.

I think -- again, I think the drop in the tenancy ratio this quarter in Malaysia is predominantly the execution of CD integration. I think on the DE, DT that's executed this quarter.

Sorry, the voice wasn't clear. Can you repeat, please?

Can you hear me?

It's breaking up a little. I'm not sure if it's mine...

Maybe we can say what Adlan mentioned. I think you know there is this CelcomDigi integration going on. And as part of that, there have been some decommissioning as part of the plan. Obviously, in return, the revenues are protected by extending contract with CelcomDigi.

Got it. Sorry, Vivek, can I just have a quick follow-up? I mean XL has high leverage. I believe they are negative free cash flow. Why are they paying a special dividend, especially if they're issuing shares to pay a dividend? I mean that's a form of capital raise to pay a dividend. It seems...

So they're not issuing shares, right? They basically sold the -- monetized the treasury shares.

Treasury shares.

There are no new issuance of shares.

But that's in the form of capital raise, right? So you're taking money from certain shareholders and giving it to existing shareholders.

Yes, yes. Yes. So I think we do see leverage over time coming down. And I think it was seen as a way because these shares -- this money was actually paid out earlier when they bought the shares back from the dissenting shareholders.

Okay. Let's move on. The next line of question comes from Luis from Citi. Let's unmute the line for Luis so that he can ask his questions.

I initially had 2 questions. The first one on -- a few more on EDOTCO. We noticed that tenancy ratios in Philippines has finally recovered quite well. What's the factor behind that? Has the third operator gotten an infusion? Or what has changed essentially? And second, related to Ranjan's question on Malaysia, the tenancies are down, but the revenues are down even more significantly, double digit Q-on-Q. What's driving that? Is there a renegotiation of rates? And the second question, a bit of housekeeping, sorry, but if you could walk us through the exceptional items in 9 months or third quarter, just broadly, what are the big items, that would be great.

Okay. Thank you, Luis, for the 3 questions. I think the first one and the second one, can I please request that the EDOTCO team take that, please?

Yes. I think for Philippines, yes, I think we have seen this year a pickup in our orders, right, predominantly coming from Globe and Smart. But I think more importantly, the colo is actually coming from Globe. And today, we are the preferred partner from Globe -- for Globe today, right? And a lot of the sites that we are getting that the SLB from Smart is being colo-ed by Globe. You would expect that this number will continue to grow in the coming quarters as Globe ramp up their rollout and their co-location, especially to our existing SLB sites with Smart. The second question is on...

Yes, Malaysia revenues down Q-on-Q or double digit?

Yes. So I think there are 2 factors there with regards to revenue. I think predominantly the same as what you've seen in [ Malaysia ], we are being impacted a lot on revenue essentially as a result of ForEx, right? If you look at for year-to-date, our ForEx losses for revenue impact -- revenue is around MYR 95 million, EBITDA around MYR 77 million and PAT around MYR 27 million, right, so because of the strength of the Malaysia ringgit. So that's partly due to that.

Malaysia revenue.

Malaysia revenue.

Malaysia revenue as compared to...

Q-on-Q. In the Excel sheet, it's MYR 235 million versus MYR 269 million the prior quarter. So it's down 13%. Is that from a renegotiation of tenancy rates or something?

Q-on-Q, right?

Correct, Q-on-Q, yes, sir.

Sorry. Okay. Yes, I think the debt reduction, because in quarter 2, we had a one-off revenue coming from our Wi-Fi EBITDA project from the USP fund from MCMC. So MYR 40 million recognized in quarter 2 as regard of that project, which was fully recognized in quarter 2, but none was actually recognized in quarter 3 essentially.

Okay. I think on -- Luis, on the third question was basically you were requesting to understand the one-off items for YTD basis for Q3. Is that right?

Either is fine. Just a broad -- what are the larger items.

Yes. So the biggest ticket item there will be the impairment at -- the Link Net goodwill impairment, right? And there's also further accelerated depreciation of assets at XLSMART. As part of the merger integration, certain equipment assets will be -- are and will be decommissioned. So as and when these assets are taken offline, then there's accelerated depreciation for this. Other than that, there's...

The gain from...

Yes. The gain from the XL's -- disposal of XL.

No, no, gain from the early redemption...