Axiata Group Berhad (AXIATA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Clare Chin, Head of Investor Relations at Axiata Group Berhad. Apologies for the slight delay. But nonetheless, thank you for standing by, and welcome to Axiata's First Quarter 2026 Results Briefing. Today, we have present with us Vivek Sood, Group CEO; Nik Rizal Kamil, Group CFO; as well as representatives from our operating companies. There will be a short presentation followed by a Q&A session. So without further ado, I would like to hand over the floor or the mic to Vivek.

Thank you, Clare. Very good morning to all of you. Thanks for attending this Q1 results briefing call. Let me start with a bit of a reflection over the last 3 years and the strategy going ahead and how we are positioned to ensure that we can deliver on the strategy, which we laid out and actually briefed most of you in January when we had the Investor Day. I think over the period of last 3 years, we've -- as we've improved our financial position by strengthening our balance sheet. We've been able to get our opcos more resilient with a lower leverage level at the operating company level. We've also been able to pay down some of our holding company debt from, I think it was around MYR 11.5 billion, which is down to now around MYR 7 billion. And we've been also able to upstream our dividend well from the operating company, resulting from a strong cash generation over those markets. We also have this focus around the 5 vectors of value creation and 5 strategic priorities. I would say most of them are pretty much executed on. Some of them are still to be seen as the benefit realization, specifically on account of the mergers, which we've done in the 3 markets, which is Malaysia, Bangladesh and Indonesia. I think -- sorry, Sri Lanka and Indonesia. Sri Lanka has been a good success. I think we are seeing that impact coming out in the results of Dialog. In fact, as we speak, Dialog is the most valuable company in the Sri Lankan Stock Exchange at this point in time on market capitalization. And this synergies puts us in a fairly strong position in most of the markets being #1 or a strong #2 player as well as a strong position in Indonesia, where we have sufficient spectrum to compete in the market. We've also optimized our portfolio by exiting out of some difficult markets like Nepal as well as the Myanmar on EDOTCO. Yes, we did consequently took some haircut. But I think in the long run, it was better to get that cash from those assets and deploy it in a better purpose than really struggling to move money out of those markets. Going forward, on the back of this, going forward, I think we've laid out the strategy to focus on telecom and technology areas. Telecom would be essentially focused on delivering full potential and high cash flows and technology would be essentially to create value and over a period of time, realize those value creation. And this will come out of sharper capital discipline, portfolio simplification and unlocking full potential. I think given our market position in some of those markets where we are present, I think we have a very strong opportunity of delivering the full potential of our telcos. And this cannot be delivered without having best people who are engaged enabled, AI native and having the right kind of a winning culture in place. So that's some emphasis which we will continue to put in. And what do we, as financial outcome deliver is enhanced dividend, better TSR and resilient balance sheet, which we project. So if I go to the next slide. So this is what we said, basically telecom and technology assets to telecom based on profit generation and technology on value and ensuring that we are able to get good yield coming out. And as far as technology businesses are concerned, I think primarily looking at investments from external funding. As you know, for our fintech business, we are currently running a process for external funding, and we expect that should be completed in a shorter period of time and the outcomes, which are given on the right-hand side. So -- and I think important factor is that these outcomes have been aligned to the management's long-term incentive to ensure those are in line with shareholder returns. So if I go to the next slide. So quickly, I think the profits for quarter 1 were strong at MYR 274 million. Having said that, the profit does get impacted because of one-off events, for example, accelerated depreciation continuing in Indonesia as well as the modernization effect coming in Bangladesh and also the fact that the currency ringgit strengthened versus our operating currencies during the year. Having said that, on an underlying basis, if I adjust for some of these one-offs, I think we've had a very, very strong quarter with revenue growing at 8.5%, EBITDA growing at 25.9%, EBIT at 67.9% and profit more than doubling. The profit of MYR 438 million on an underlying basis is actually delivered after a fairly long period of time, which is Q4 '22, which was done. And also, I'm happy to say that most of the markets we are rolling out 5G, except Robi, where I think it's still more at the discussion stage or I would say, trials because of the absence of spectrum in those markets. I mean, arguably, one can say whether 5G investments is monetizable or not. We think our position in some of these markets, specifically Bangladesh and Cambodia should be able to give a better outcome coming out of the 5G. And we are seeing monetization in early stage on the execution of 5G strategy. And specifically in these markets, I think fixed wireless access is a big opportunity, which we think we can capitalize on. On the telecom side, I think Dialog achieved their highest ever profit. XL merger integrations are ahead of plan. I think we are seeing synergy realization coming in, but it's early days to see the full impact of the integration there. And we've seen market share improvement at Dialog and Robi. We think also Smart, we would have, but Smart, we don't have public information for us to be very concrete in sthating that. And also the fact that we continue to have capital return to Axiata where EDOTCO continues secondary year and running paying dividend. And also Dialog because of its cash flow and profit performance, we've actually moved to a quarterly dividend payout from Dialog. This also ensures that we are not risking the ForEx movement from a cash flow standpoint. On the technology business, I think Boost continued to grow its loan book. I think we are still on plan to breakeven Boost Bank in 3 years' time horizon. Loan growth is not as high as we had expected. Now having said that, I think the companies -- the bank is managing the costs in line with what were the plan so that we still meet the target of 3 years for breakeven in Boost Bank. And ADA continues to do well on the top line coming out of solution business, whereas the customer engagement, which is A2P SMS business remained stable. I go to the next one. So let me quickly run through the operating company by company, our performance. I think CelcomDigi, you would have already heard the CDB's presentation, so I'll not spend too much of time on it. The only aspect which I would address is while market remains fairly tight and the growth are still quite low, I think company is continuing to focus a lot on the operational excellence, which is driving better cost structures as well as improvement in the EBITDA margin and resulting in improvement in profits. And that, I think, is a target which they have put for themselves, both in terms of the OpEx savings as well as CapEx efficiency during the year. Next slide. I think XL Smart, I don't do comparison because last year was not really comparable given that we had only one entity, which is XL in the base for the quarter 1. But I think worth looking at how is the performance on a quarter-on-quarter basis, which may be more meaningful. I think we are seeing market structure improving. ARPU has been uplifted quarter-on-quarter by around 6% to around IDR 47,000. And also EBITDA margins has been uplifted to around 45.6% from the last quarter of 34.6%. So this is basically benefits of the synergies coming into play as the integration progresses ahead of the plan. I think we expect the integration of networks to be completed by quarter 3 and by early '27, the IT integration should also be done. And as far as human side is concerned, I think we've already done the restructuring of headcount and also the combined sales restructuring is currently in progress. So we should start seeing the full benefits coming in, in '27 onwards. But this year, we are looking at approximately $300 million of synergies from the merger coming in. Now profit numbers obviously do not look that great for a simple reason. that we still have the accelerated depreciation on the integration coming and hitting the numbers. That should come again in quarter 2, but that would be the end of -- because by that time, we would have completed the network integration in Indonesia. Rabi, I think very strong performance coming out of top line growth of around 8.1%. Quarter-on-quarter, obviously, because of the 2 days less as well as seasonality, we don't see growth there. But year-on-year, I think a strong 8.1% and they've been the best performer in the market, gaining market share in this particular quarter. And in fact, we have been doing that for the last whole year. And that growth is reflected into a very strong EBITDA growth of around 3.5% quarter-on-quarter and 21% on a YTD basis. and reflective of EBIT growth. Having said that, EBIT growth does factor in BTD 1.2 billion on account of D&A coming out of taka modernization. I think that we expect to be completed by the first half of this year. And that should provide much efficient as well as much improved network in the core market in Bangladesh, which is taka, and that should allow us to have a very competitive position in this market. And reflective of that is -- I mean, you see from a cash flow standpoint, I think we have been flat mainly because of the investments made in -- for taka modernization. But overall profits of BTD 2.3 billion has been a strong 85% growth on a year-on-year basis. Dialog, I think has been a terrific performance. I think the benefits of the merger are being fully realized as well as market has seen market structure improvement. I think both operators, SLT as well as us have seen ARPU improvement, and there are necessary improvement in the market structure, which is very clearly visible. Growth, 9.2% on revenue. EBITDA grew by 23.1% and more than double profit. And that came across all lines of businesses, barring some global business, which has been still because of the global traffic not back to the normal level. All other businesses have been significantly ahead. And global traffic deliberately has been something which is the hubbing business company has not been focusing on because that's a very low-margin business for us. But all the high-margin business have been doing well. As I said, synergy benefits are realized and cash flow generation has been strong, and that's resulting in a very strong balance sheet. In fact, they would have by now paid out all their dollar debt, which also insulates them from the currency volatility as was felt in the earlier times when we -- Sri Lanka went through the financial crisis. We've also moved to a quarterly dividend in Sri Lanka with a dividend per share of 0.7, totaling around LKR 6.4 billion declared for the first quarter. And based on the current share price, that should result in around 9.2% yield. So very strong performance, and that's reflected in a strong profit number more than doubling compared to last year of LKR 9.1 billion. On a cash flow, while 12.8% increase on cash flow, impacted partly because of the 5G investments, which has been made as well as some spectrum, which was -- which was purchased. Next. again, Smart continues to deliver consistently their performance. Quarter-on-quarter, obviously, impacted because of number of and seasonality, but year-on-year, strong 7.3% growth in revenue. Even though electricity costs have gone up, they see impact on the growth in EBITDA as well as EBIT very strong. Cash flows remain steady and profits remain steady. Again, a lot of investments have been going into investments into 5G. I think we should taper down once the 5G rollout is completed. And Smart continues to have a very strong cash position of around USD 174 million sitting on their balance sheet. Link Net is one I said we've been kind of struggling with and partly explained by the fact that the XLS was one of the only customers initially wasn't growing their fixed broadband business sufficiently, and that was keeping their margins and the revenues low. Having said that, I think we've started looking at open access after the exclusivity period with XLS got over. And then open access has been helping provide to the other ISPs and also looking at scaling a sales as a service for some of the ISPs given that there has been a strong sales process. Now one can argue is there a cost we are putting in. That's not the case because it's all on a variable model. And on first month itself, the cost of selling is actually recovered from the ISPs. We also see enterprise pipeline conversion to grow given there were in the first quarter's budget restrictions at the government and the large SOE spend. I think that's an area where we should start now seeing money being spent, and we should be able to get a better traction on the enterprise business going forward. I think we still remain focused on looking at potential monetization of these assets. Otherwise, very focused on improving its cash flows and profitability over the next couple of quarters. EDOTCO, I think a stable performance. The only impact has been, again, similar to Axiata's reported numbers has been the impact of foreign current foreign exchange and ringgit again strengthened against all the operating companies. Current operating currencies. And EBITDA was kind of cushioned by disciplined cost management, which was there. We also had some of the adjustments on contracts in the last quarter of 2025, which has an impact. But these adjustments on contracts allowed EDOTCO to extend the duration of their contracts, which does provide certainty of cash flows for a longer period of time. So those were kind of strategic decisions taken to capture a longer cash flow certainty of EDOTCO. Okay. Next one. I think ADA, we see a strong top line growth of 10.7%. Having said that, I think the margins were lower because of front-ending some of the marketing platform and logistics costs. for some new customers, which were acquired on the e-commerce business by ADA. We don't see these costs being counting. So we should see the revenue buildup translating into better margins in the subsequent quarters. I think we are still pretty much looking at improved results for the full year coming out for ADA. Next one. Boost, I think, was somewhat benefited because of the one-off MYR 51 million income coming from software services gain. This is basically some of the platform access, which was provided to the other players in the fintech space in Malaysia. And that resulted in improved EBITDA and also better profits coming out in the first quarter of this year. Our bank loan book continues to grow well. And Boost Wallet is also scaling up in the credit business. So we are still, as I said, still tracking this well. And with new money coming in, it should be well funded for meeting the objective of breakeven over the next 3 years' time frame. So I'll then hand over to Nik to go through the group financial numbers.

Sure. Thanks, Vivek. [Foreign Language], good morning. I will now take us through our quarter 1 '26 financial performance. On this page, you can see that on revenue, we recorded at the group level of MYR 2.8 billion. Year-on-year, this amounted to a 3.2% decline, which was mainly driven by the strengthening of the ringgit against all other OpCos local currency. However, taking out the impacts of ForEx on a year-on-year basis, i.e., at constant currency, revenue grew by 8.5%. The key drivers for the underlying performance was mainly in Robi and Dialog for mobile growth, while Boost had, as what was alluded to by Vivek earlier, posted a one-off revenue recognition from software service gains. At EBITDA, we recorded MYR 1.356 billion year-on-year, 11.2% higher and at constant currency, 25.9% higher. Key drivers for this for the underlying performance is the cost optimization and scale benefits from revenue growth in Dialog and Robi and also lower overall cost at company level. For revenue and EBITDA, you will notice that on a quarter-on-quarter basis comparing to quarter 4 last year, it was slightly below, and this is mainly due to quarter 1 2026 having 2 less days due to the shorter month of February. At EBIT, we recorded MYR 583 million, 48.4% higher year-on-year and 67.9% higher at a constant currency basis. Key drivers is the flow from the top line and also lower depreciation and amortization charges. GCE, which is our joint control entities, share of our results posted MYR 62 million, 48.4% lower year-on-year. However, on a quarter-on-quarter basis, higher by 100% or more than double. In under GCE, we essentially have 2 companies. One is CelcomDigi in Malaysia. Again, I won't go belabor into the point, but as what was mentioned by Vivek, it was a solid performance by CDB. You would have heard at the own analyst basically presentation. The contribution to Axiata Group was 9.4% higher at MYR 131 million compared to the same period last year of MYR 119 million. At XL Smart, it was a share of loss of MYR 69 million due to the higher merger integration costs. However, underlying -- however, the underlying performance was positive at MYR 128 million after we take away the accelerated impact of accelerated depreciation due to the network integration and other network integration spending. At the PATAMI level, we recorded MYR 274 million, 71.3% higher year-on-year and more than doubling quarter-on-quarter. This is reflecting of the stronger performance of continuing operations despite the absence of XL, Axiata and EDOTCO Myanmar's results in quarter 1, 2026. This is in comparison to the first quarter of last year. At UPATAMI level, it was MYR 438 million, more than doubling year-on-year and also quarter-on-quarter, lifted by the strong underlying performance at XL Smart, Dialog and also Robi. Next page on balance sheet. Group cash was at MYR 3.6 billion, lower by about 19.5% year-on-year and slightly lower 3.3% lower quarter-on-quarter. Year-on-year performance is mainly due to the deconsolidation of the XL Axiata balance sheet from second quarter of 2025. Holdco cash was strong at MYR 705 million, 28.6% higher year-on-year. Group borrowings was at MYR 15.1 billion, 33.9% lower year-on-year, flattish on a quarter-on-quarter basis. This is again mainly due to the deconsolidation of XL, but also debt paid down at holdco, Robi and also Dialog. Holdco borrowings was 26.6% lower at MYR 6.85 billion. This is a comparison on a year-on-year basis in quarter 1 2025, holdco borrowings stood at MYR 9.3 billion. So in a 1-year time space, we have basically reported a lowering of holdco borrowing by about approximately MYR 2.5 billion. And this is due to the discipline and some of the liability management that we managed to do in the financial year 2025. Quarter-on-quarter is also slightly lower at by 1.6%. AOFCF was strong at MYR 510 million, 19.9% higher year-on-year and more than doubling quarter-on-quarter. This is driven mainly by the higher EBITDA performance as what we've gone through previously earlier and also offset by higher -- however, offset by higher CapEx, mainly at Robi and Dialog from network modernization and also 5G rollout. As a result, our net debt to EBITDA quarter-on-quarter was slightly higher at 2.51x compared to 2.46x at the end of quarter 4 2025. This is mainly due to the impact of the stronger ringgit. However, comparing to the same quarter last year, it's lower as quarter 1 of last year, we had 3x net debt to EBITDA. Moving forward, as what we've basically presented in our Bursa announcement, we've now moved and what we've indicated during the quarter 4, the full year 2025 analyst call for this year, FY 2026 due to the various movement in our portfolio, we've now moved to a prospects for the financial year ending 2026. I won't go through the whole paragraph. I think this is already included in our announcement, but just to highlight a few matters whereby for 2026, the group will still continue to progress on our strategic journey centered around 2 key portfolio grouping, telecoms and technology. For the telecoms portfolio, quarter 1, 2026, we saw a very strong performance that delivered strong profit growth. And for same quarter under the technology portfolio, it also turned around to report profits, mainly driven -- ADA was already profitable, but in Boost, we benefited for the -- from the one-off revenue recognition from some software sales. We've also included a paragraph around the ongoing geopolitical tensions, in particular, the Middle East region due to the conflict between U.S., Israel and Iran. Whilst we've indicated that the group is mostly exposed to second order effects through our reliance on global vendors, international financing and overall regional economic sentiment that will affect consumer demand. We will continue to provide -- basically monitor the situation and exercise prudent liquidity and risk management, and we will periodically also assess the impact of group operations and financial performance. And this is done quite rigorously, not only at the group level, but also at our individual OpCo level. As such, barring any unforeseen circumstances, we believe that the group continues to remain on track to deliver on the profitability and valuation growth. Next, on opportunities and risks for 2026. By and large, this is still the same as what we had communicated during the Axiata Investor Day in January earlier this year. And the opportunities, merger synergies in Malaysia and Indonesia and market repair in our -- across all our markets continue to prevail in our telecoms portfolio. Obviously, we had touched upon already on 5G market leadership in Indonesia, Sri Lanka and Cambodia and potentially with -- in Bangladesh to come in the future. Other opportunities also relate around the successful monetization of our infra assets and also continuous reduction in our holdco debt and OpEx optimization. On the risk, obviously, the risk around transition from single wholesale network to dual wholesale network in Malaysia continues to be there. We do have some clear light in front of us with regards to the resolution at DNB or Digital National Berhad with the next milestone, which everyone is aware of in June with the resolution of the MoF put and also the refinancing of the government guaranteed loans. Under 5G, obviously, monetization of 5G investment in markets continue to be a risk. However, as what was alluded to by Vivek earlier, we do see a lot of opportunities here as well, especially in the areas of FWA fixed wireless access and also other use cases for -- to enable us to monetize on our 5G investments. As I mentioned just briefly before, geopolitical and macroeconomic risks continue to pose serious risk to the group, especially around the prolonging of any tensions in the Middle East. With that, I end our presentation, and then I believe we can now move on to Q&A. So thank you very much.

Thank you, Nik. Thanks, Vivek. So moving on to the Q&A session. I would like to highlight that we also have representatives from our OpCos,namely from [XL], Robi, Dialog Smart as well as Link Net on the call if you wish to address your questions to them directly. [Operator Instructions] So let's start with the Q&A session. I do see one hand up at this point is Sigrid from JPMorgan.

Can you hear me?

Yes.

I have 2 questions. Maybe I'll take them one by one. Firstly, I noticed the first quarter operating cash flow is pretty soft at MYR 216 million as compared to the MYR 1 billion quarterly run rate in the second half of last year. May I know the reason why?

Both questions together.

Yes, sure. And the second question is on the lower D&A this quarter. It's about MYR 85 million quarter-to-quarter reduction. And also compared to first quarter as compared to fourth quarter last year, there's also a sharp reduction. Maybe just for the reason for that as well.

I think these are basically some housekeeping questions, right? Essentially just to repeat, right? It's basically on the D&A decline for Axiata on a Q-on-Q basis and the second quarter -- and the second question is on the decline in cash flow based on the Boost announcement.

Okay. I think let me do the -- maybe I can answer both of them. So the first one on the soft AOCF is mainly because last year in the first half, we had XL at Axiata as well as the EDOTCO Myanmar in our baseline, whereas that doesn't exist now. So the cash flow from these 2 businesses are not captured in the results of quarter 1 2025. So that's what explains the cash flow effect. Whereas on a profit line, the way Bursa requires us, we just show on continuing businesses separately. So it's not necessarily comparable like-to-like, right? But it's -- if you go in the table below the cash flow statement, you will get the details. Okay. And the second one on D&A quarter-on-quarter, I think it's because last year, we had the Dhaka modernization of around MYR 96 million, which was amortized, whereas in quarter 1, '26, that's only MYR 38 million. As I said in my earlier comments when I was talking about Robi, I think we'll have another quarter with some effect coming on Dhaka modernization. That's basically swap of the old existing equipments to be modernized equipment, we will see for another quarter. So that's mainly the reason why you see a drop in the D&A charges from quarter-on-quarter.

Okay. Just maybe allow me to follow up on the question on operating cash flow because I'm looking at the number compared to second half last year, which I understand there shouldn't be any impact from XL deconsolidation. And if I'm just looking at operating cash flow, there's about MYR 1 billion per quarter in the second half of last year, whereas this quarter is around MYR 260 million, if I got that number correct. So I just want to clarify on that number.

So I think MYR 260 million for a quarter, meaning, obviously, you're looking at around close to MYR 500 million for half year versus MYR 1 billion, which you're talking about the second half, right? That's largely because some of the OpCos have been rolling out 5G, which I said earlier, the OpCos in Sri Lanka as well as in Cambodia have rolled out 5G, and that is what comes in as the effect-- early effect. And I think we should start seeing that tapering down as the 5G rollout gets completed.

Thank you. Let's move on. I see Prem has his hand up as well from CSI.

Two questions from me. First of all, with regards to the monetization of both EDOTCO and Link Net, could you provide us with some updates on where are we with regard for the time line, are we still scheduled for this to be completed in 2026 and potentially where the risks are with regards to deal completion in 2026? And the second one is maybe just a bit of a housekeeping. If you could give -- provide us with some color with regards to CapEx spend by entity scheduled for 2026.

Yes, I can take this. So with regards to the potential monetization of the 2 assets that you mentioned, Prem, I think no major updates other than is still in progress. With regards to time line, yes, the target as what we've communicated before, is still to pursue for completion in 2026. The risk will obviously be around approvals that will be needed either from a regulatory perspective, but more in terms of timing of when we can then go and get shareholders' approval, et cetera.

Okay. Anything that's gone wrong in the process in the recent past?

In the current process, no, I don't think we're in a position to comment because it's still ongoing.

Prem, I think realize it's pretty complex when it comes to OCO, given we are talking of multiple countries and potentially multiple issues to be dealt given the regulatory environment in each country could be very different there.

Understood. And with regards to the CapEx by entities for '26?

I think for CapEx '26, we did not guide for it. But essentially, maybe just to give you a little bit of color. So for 2026, you will probably be looking at CapEx down to halving perhaps given that we've deconsolidated XL Smart XL Axiata into XL Smart. So essentially, CapEx for the group, when we look at it, excluding CelcomDigi as well as XLS will half on a sort of year-on-year basis.

Yes. So maybe what I can also add, Prem, we can't use the first quarter CapEx spend as a run rate because there's some heavy loading CapEx spend with regards to the 5G rollout in both Cambodia and also Sri Lanka. And also as what Vivek had mentioned earlier, the data modernization work that actually only commenced in towards the end of last year. So the first half of the year, probably we will probably see a little bit higher CapEx, but those are the 3 key big projects basically.

Thanks Prem. Let's move on. We also have Luis on the line from Citi.

I had 3 -- sorry, housekeeping questions to ask. The first one relates to D&A, but on the Dialog side, we saw it's down Q-on-Q. What's driving that? And should that be the run rate we're looking at going forward? Second question is, can you remind us what drives on the Axiata level, the ForEx gains because of derivatives or you're holding U.S. dollars. Last question is on UPATAMI. Could you give it to us in -- on the reported basis rather than on constant currency?

Okay. So maybe I'll take the housekeeping question first in terms of Dialog, right? Just to clarify or to be sure, Louis, it is Dialog declined on a Q-on-Q basis for D&A, right?

That's right. Yes, probably you've explained, but just wondering on Dialog.