Axiata Group Berhad (AXIATA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Clare Chin, Head of Investor Relations at Axiata Group Berhad. Thank you for standing by, and welcome to Axiata's second quarter results briefing. For today, we have present with us Nik Rizal Kamil, Group CEO; Komathi Balakrishnan, Acting 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 the conference over to Nik, please.

Okay. Thank you very much, Clare. [Foreign Language], and good afternoon, everyone. Thank you very much for joining us this afternoon for our first half of 2026 results briefing. So I'll start off before I pass on to Komathi to take us through the financials. I'll start off with a little bit on our strategy and a more higher-level overview of what had actually transpired in the -- essentially the first half of the year. So at the start of this year, we rolled out Axiata28, the Advancing Asia strategy, which is focused on driving returns for our shareholders and realizing the full value of our assets. To do this, we are accelerating the transformation of the group and building on the momentum of what we have already achieved over the last 3 years. Under the new Axiata28 strategy, we are operating as a smart asset manager, where we adopt a HoldCo model with our portfolio divided into 2 segments, telecoms and technology. These are the 2 engines that we are going -- that is going to drive our growth and the valuation over the next 2.5 years. In summary, as a smart asset manager, this model essentially combines a private equity-like discipline in how we own, grow and allocate our capital with the patience of a long-term strategic owner to build sustainable value and deliver outsized returns to our shareholders. This is how we aim to realize the full value of our assets, and coupled with disciplined capital allocation and recycling of capital, this is how we will deliver on our commitments to our shareholders. For the first half of 2026, I'm happy to report that Axiata has delivered strong earnings growth, higher dividends, and we are continuing on our portfolio transformation journey. With regards to our -- as you can see in this chart over here, I'll start off with the point that we are also happy that we declared our first interim dividend of MYR 0.055 for the first half of 2026. This is 10% higher than the MYR 0.05 per share, which we declared in the first half of last year. This is clearly a commitment that we have went out publicly, whereby we are committed to deliver at least a 10% per year year-on-year growth between now and 2028, which will culminate in us returning in terms of dividends of about -- of at least MYR 3 billion to shareholders by 2028. As a smart asset manager, we have also taken strategic decisions to allocate investments to ensure and enhance our network leadership in our operating companies. This includes in Dialog, we have 5G deployment. In Robi in Bangladesh, the modernization of our Dhaka network in the Dhaka region. In Indonesia, XLSmart is also deploying 5G, and there was also spectrum acquisition in the quarter. And in Smart, besides 5G deployment, they also acquired or obtained a fiber license. And as seen in our results, we are already delivering outsized returns on these investments. With regards to the telecoms portfolio, we are seeing improved earnings momentum, where we have upstreamed MYR 875 million of dividends, which was received from a diversified portfolio of about 5 different operating companies. The breadth of this dividend upstream strengthens the visibility and resilience of cash flows to Axiata. On profitability, our underlying profit contribution from the portfolio, which includes telecoms and also our infra assets grew by more than 60% in the first half of 2026. This was underpinned by XLSmart's successful post-merger momentum, strong performance and also strong performance from Dialog and Robi in particular. This set of results demonstrates how improved market structures, merger synergies and operational discipline are translating into stronger earnings from this portfolio despite the macro and geopolitical risks. On the right, we have our technology portfolio, which is scaling capabilities and building valuation. As for the technology portfolio, it reached a breakeven milestone in the -- for the first half of the year, and this reflects improved performance across ADA, Boost and also Axonect, the old ADL, basically. On ADA specifically, our AI experience OpCo, ADA completed its acquisition of an India-based company called Algonomy recently, which adds deep AI capabilities in personalization, merchandising and also supply chain intelligence. The combined business extends ADA's reach to 34 markets in APAC, the U.S., MENA and also Europe with Algonomy trusted by more than 400 leading brands globally. ADA delivered 15.9% revenue growth in the first half, and we are expecting an even stronger second half of 2026. Boost successfully secured IFC as a strategic investor at the end of July at a post-money valuation of USD 340 million. Boost loan book has also now expanded to MYR 418 million, representing a 150% year-on-year increase. Whilst recently, Boost also launched the Boost SME app, which brings business banking, payments and financing for SMEs together into a single digital platform hosted on the Boost Bank app. Next slide is on dividends received. As you can see, we've shown the quarterly dividend essentially upstreaming from our operating companies. But at the top, we also have the dividend payout, our half-yearly dividend payout, which I alluded to earlier, shows a 10% year-on-year growth from MYR 0.05 per share to MYR 0.055 per share for -- which we declared today. And essentially, as I alluded to earlier, this is supported by the MYR 875 million upstreaming of dividends from our telecoms portfolio in the first half. And as such, we are on track with our commitment to grow our annual dividend per share by at least 10% through 2028 and to return at least MYR 3 billion to shareholders cumulatively by 2028. With regards to the quarterly dividends drive, what we had announced in quarter 1 is that Dialog in Sri Lanka has committed to quarterly dividends since quarter 1 2026. And alongside CelcomDigi, which already has an established quarterly distribution, this is expected to provide a visible uplift in our third quarter upstreaming relative to our historical pattern. And this will entail -- provide a more regular cadence of cash receipts throughout the year for Axiata HoldCo. EDOTCO has also broadened the Axiata's dividend base. So having commenced dividend upstreaming to Axiata in 2025, for the first half of the year, EDOTCO has continued its distribution with USD 25.5 million, which was declared in the first quarter of 2026. So as a smart asset manager as well, we are also working closely with our OpCos to deliver full potential value creation and also stronger cash generation whilst ensuring greater frequency and consistency in dividend upstreaming. This will then support more visible and predictable cash flows to Axiata HoldCo. As upstreaming becomes more visible and predictable, it could also provide Axiata with greater flexibility to evaluate more frequent shareholders' distribution over time, obviously, subject to financial performance, liquidity requirements and Board approval. On the next slide gives a snapshot of a summary of the performance of our portfolio for the first half of 2026 in comparison to the first half of 2025. The good news here, obviously, from a visual perspective, there's more greens than red. So that's the first big plus. But now, I'll take us through one by one as a summary of our operating companies. And on the left, we start from the left on CelcomDigi, there's -- revenue remained resilient at about MYR 6.4 billion in the first half of 2026. I'm sure some, if not all of you would have received some further insights as well from the CelcomDigi analyst call that happened, I think it was, last week, right, last week. So revenue remained resilient, and this was supported by continued growth momentum across mobile, home and fiber and also enterprise solutions. MYR 141 million in operational efficiencies savings also supported stronger operating performance with EBITDA and EBIT growth exceeding revenue growth. The company maintained its commitment to sustainable shareholder returns with an interim dividend of MYR 0.034 declared for quarter 2 2026. For XLSmart, XLSmart has posted strong post-merger momentum with integration and synergies driving growth. Revenue grew 25.8% year-on-year, supported by sustained data demand, a stable subscriber base and higher ARPUs. Continued integration and optimization accelerated synergy realization and strengthened operating performance, supporting EBITDA growth of 24.6% and EBITDA margin of 45.7%. Underlying PAT for the first half of the year was IDR 2.7 trillion. At Robi, strong data demand and disciplined cost management supported continued earnings growth with EBITDA increasing 15.6% and PATAMI rising 29.3% year-on-year. Robi maintained strong operating momentum and a resilient balance sheet while advancing its network modernization in Dhaka to enhance connectivity for its customers. In Dialog, strong execution supported shareholder returns and 5G leadership with EBITDA growing 22.9%, whilst profit more than doubled year-on-year. This is supported by mobile growth and disciplined cost management. The strong performance enabled Dialog to continue rewarding shareholders quarterly, as I alluded to earlier. And in the first half of 2026, they declared a LKR 1.40 per share, while sustaining investments to strengthen its 5G leadership position. At Smart, a strong performance supported by data demand and 5G investment with continued growth in prepaid mobile data usage, and higher customer spending supported the healthy performance for the first half of 2026. The Smart delivered PATAMI of USD 65 million for the first half of the year and maintained a strong balance sheet whilst continuing to invest in 5G to support future growth. For Linknet, recovery momentum continues to build through subscriber additions and improved enterprise traction, especially as we are seeing sequential improvements in revenue and EBITDA from a quarter-to-quarter basis for this year. This is supported by the, as I indicated earlier, subscriber additions and also improved enterprise demand. There was also continued execution, remains focused on delivering sustainable growth and also long-term value. At EDOTCO, despite ForEx headwinds, the underlying performance remained resilient. The reported performance was affected by foreign exchange translation impacts and commercial settlements in both Malaysia and Bangladesh. Despite this, the underlying operating momentum remained resilient, supporting a 3.7% year-on-year growth in tenancies. In the technology portfolio, ADA, I alluded to earlier, had double-digit revenue growth of 15.9%, which was supported by its continued expansion in its Solutions business. Earnings moderated partially as the company invested in platform enhancement and AI capabilities to support future growth. I had already alluded to earlier the acquisition of Algonomy that was closed in -- at the end of September, early August of this year. And this essentially with the acquisition of Algonomy, it advances ADA's position as a leading data and AI experience company. At Boost, I had alluded to earlier, loan book expansion to MYR 418 million supports growth momentum, where revenue increased 67.3% year-on-year. And also, we had -- at Boost, we also had a one-off income from software and related services of about MYR 51 million that was booked in the first quarter of the year. Boost continues to scale its digital banking and financial services platform with growth initiatives expected to drive stronger momentum ahead. With that, I will then pass on to Komathi, who will take us through the quarter 2 2026 results in a bit more detail.

Okay. Thanks, Nik.

Thank you.

Okay. So let's now moving on from the operating company's financial performance, then we look at the overall group Axiata consolidated financial results. We continue in quarter 2 to be actually affected by the ForEx translation because of a stronger ringgit against an operating company's local currencies. So overall, on the underlying PATAMI perspective, our underlying group PATAMI has grown double to MYR 717 million. This is really a strong performance at the back of disciplined capital allocation into our leading network leadership, combined with improved market structure and successful merger integration. XLSmart continues to capture merger synergies while strategic investments in Dialog and Robi as well as Smart are delivering strong results through higher data monetization and also operational excellence. As I mentioned, for revenue on a reported basis is down year-on-year 3.2%. However, on a constant currency, we see a very strong performance for revenue growth of 7.3%. This is main -- key drivers of this underlying performance are coming from Robi at 7.1% increase in prepaid data revenue. Dialog also shows a 9.3% increase mainly in prepaid data revenue, benefiting from sports events, which includes the World Cup as well as cricket in the country. ADA recorded a 15.9% increase in Commerce and Personalization Solutions revenue. A very strong performance in revenue. On a constant currency basis, we also see EBITDA growth of 14.1%. Even though we are experiencing inflationary effects as well as supply chain cost pressures, our EBITDA has improved strongly across most OpCos through a very sustained cost discipline. Moving on to EBIT. EBIT demonstrated year-on-year increase of 18.9% and on a constant currency basis. Key drivers are underlying performance, largely a flow-through from the top line, which I mentioned earlier. Diving into share results. We continue to see a strong contribution coming from CelcomDigi Berhad over the years. In particular, XLSmart share of result has grown very strong. The underlying performance of MYR 259 million post normalization of accelerated depreciation of assets as well as integration costs has contributed positively to the group results. We have recorded a PATAMI of MYR 316 million, which shows year-on-year performance of more than 100% growth as well as at UPATAMI, as I mentioned earlier, it's a very strong performance with a more than 100% growth to come to a landing at MYR 717 million. Quarter-on-quarter of UPATAMI, we see a reduction because of some of the one-off costs, including dividend upstreaming. We have to incur withholding taxes for this dividend upstream from our other markets, which -- earlier explained by Nik. Let me then move on to balance sheet. Balance sheet for first half continues to be very resilient as at 30th June 2026 based through a very disciplined capital allocation as well as enabling the group to fund strategic portfolio investments while delivering higher shareholder returns. Group cash, very healthy at MYR 3.7 billion. Just to highlight as well, in the current quarter, we also received the USD 75 million balance deferred consideration for XLSmart merger from last year. That is for USD 75 million, translating to about MYR 297 million. Moving on to group borrowings. Group borrowings is down year-on-year, 11.1%, continue to -- because we continue to focus on bringing down our debt. Current -- look at quarter-on-quarter, there's a slight increase from 4.3%. This is mainly coming from Robi and Dialog's drawdown to manage our fund network strategic investments, as mentioned earlier. However, it's also important to note that our net debt to EBITDA at Robi and Dialog is very healthy at about 1.2x as well as 0.6x, respectively. AOFCF, which is a very leading indicator for cash generation for the group, is healthy at MYR 678 million. It is down year-on-year because we are investing in our network to obtain our network leadership and also improvement in customer experience, in particular, for Robi's Dhaka modernization efforts as well as Dialog 5G rollout. HoldCo cash also remains very healthy at USD 1 billion, and this includes, as I mentioned, deferred consideration from the XLSmart merger of USD 75 million. HoldCo borrowings year-on-year is down 12.1%, mainly due to continuous liability management that we have done over this period. And net debt-to-EBITDA at 2.63x, slightly higher than the last quarter of 2.15x, but this is expected based on earlier when I alluded to the network investments coming from higher -- slightly higher borrowings at Robi and Dialog. Okay. I think that comes to the end. Maybe I pass on to Nik.

Thank you, Komathi. Okay. I believe this is probably my last slide. Here, again, to reiterate again some of the opportunities and risks that we are seeing for 2026. It's actually nothing new from what we had communicated earlier. On the opportunities, we do still see opportunities around realizing the full merger synergies in both CelcomDigi and also XLSmart in Malaysia and Indonesia, respectively. Market repair and growth in our telecoms portfolio, we do still see opportunities in terms of ARPU growth and uplift. Notwithstanding that it has been in an upward trend, we do see that, that trend continuing into the second half of the year. There's also an opportunity around fiber play in Cambodia with the attainment of the fiber license there under Smart. And 5G in all markets with the exception of Bangladesh continues to basically post some good opportunities for us to increase revenue and also profitability going forward. In the technology portfolio, we see opportunities in new investors and partners coming in to fund growth opportunities, either organic or even inorganic within the technology portfolio. Here, we've already seen that ADA has been successful in previous years in bringing money -- new investors to come in. The most recent, as what we mentioned earlier, Boost being able to bring in IFC as an equity investor in the last month. With regards to HoldCo debt, we see opportunity to further strengthen the balance sheet from continuous liability management. On the risk side, the main risks still evolve around -- revolve around geopolitical and macroeconomic risks, in particular, the Middle East tensions that is impacting ForEx, interest rates and inflation with the second order impact towards customer spending ability that will -- can impact our retail-focused customers. There's also risk around supply chain disruptions from higher energy costs, especially from imported oil and gas, but also with regards to materials, including equipment, GPU, chipsets, et cetera, which is seeing a marked increase in price inflation on a month-on-month basis. 5G continues to be a risk as well from an evolving landscape perspective in Malaysia, in particular, with the resolution around DNB. And also for the telecoms portfolio, monetization of 5G investments, which also relates a little bit to the ability of customers and our enterprise customers and also retail customers to really pay and basically increase demand for 5G services going forward. So the monetization of 5G investments will continue to be a risk. So with that, I'll take a pause. And again, before I end, just to recap, for the first half of 2026, I think Axiata Group has produced very, very strong resilient results. This is on the back of good execution of our Axiata28 strategy, which entails was an evolution of our previous 5x5 strategy. The main engines of growth and profitability continues to be a source of cash flow in terms of dividend upstreaming continues to be from our telecoms portfolio, but we are seeing continued improvements in our technology portfolio from a narrowing of losses basis, but also the ability to bring in new investments and also expanding their offerings in the case of ADA via inorganic route with the acquisition of Algonomy, which was closed recently. With that, I'll take a pause or we can call this presentation to a close and open it up for Q&A session.

Thank you, Nik. Thank you, Komathi.

So moving on to the Q&A session. And I would highlight that we also have representatives from XL, Robi, Dialog, EDOTCO and Boost on the call to answer your questions, too. Further, we can also take housekeeping questions offline with the Axiata IR team after this. [Operator Instructions] So we will start our Q&A session. I do see there are some hands raised. Perhaps we can -- Sigrid from JPMorgan.

This is Sigrid from JPMorgan. Just one question for me for now. Any guidance on dividend going forward and as well as consideration of cash flow?

Right. The -- essentially the guidance or aspiration -- well, basically, what we have indicated to the market externally as part of our Investor Day is that our aspiration is to grow dividends by 10% on a year-on-year basis. I'm assuming you're talking about the dividends paid by Axiata Group or declared by Axiata Group.

Yes.

Yes. Yes. In that case, we've given a commitment that we are aspiring to grow our dividends that Axiata Group declares on a 10% year-on-year -- growth year-on-year basis. If you recall, for the last 3 years, I think we've been paying on an annual basis, yes, about MYR 0.10 per year. So 10% growth on that is essentially we are targeting to pay MYR 0.11 for 2026. So for the first half of the year, we have essentially declared half of that, so MYR 0.055 per share.

Does that answer your question? Yes.

Yes. Okay.

Okay. I think we do have Luis from Citi up next, please.

I had 3 questions initially, 2 on Robi and 1 on Dialog. For Robi, you saw that EBITDA margins up healthily Q-on-Q and year-on-year, and it's driven by network cost control. Could you give us the factors that are driving this and whether you expect this to continue in the second half? Second question on Robi is for subscriber growth and ARPU growth, both healthy as well. Is it because of increasing market share? Or is the industry as a whole experiencing price repair and growth? And the last question for Dialog, similar EBITDA margins improving, but this time, it's direct cost control that's driving it. And if you could again give us guidance on second half, whether that will continue.

Great. Luis, thank you very much for your questions. I believe we've got Ziad from -- CEO of Robi on the line. So I will ask Ziad to take the Robi questions. And Supun, the CEO for Dialog, who is also on the line to take the Dialog. Maybe we can start with Ziad first.

Yes. With regards to the EBITDA, this quarter, we had a one-off of BDT 400 million that is related to the cost -- network cost, AMC. And, however, that gives us only 1 percentage point increase in EBITDA margin. The rest are related to cost structure. Also, the government has reversed or stopped charging the SIM tax starting 11th of June. So that gives us around BDT 300 million of cost of sale every month. So we expect to see further enhancement in EBITDA margin in the upcoming quarters due to the -- one, the enhancement in -- there is a one-off in the EBITDA coming from the network cost. And the second thing, we expect that this continue because this quarter, we only benefit from -- for 20 days in the whole quarter. That was the point regarding the cost structure. With regards to the ARPU, I think one of the best things that we are experiencing, this is the third quarter that we are -- we have become the leading ARPU operator in Bangladesh market. So we have the highest ARPU. This is because of the increased or enhanced data usage by our subscribers. We have the highest data consumption in the industry across in Bangladesh. So that is giving us a boost in ARPU. Voice was positively affected also this quarter due to the fact that we had 2 Eids, so we -- or 1 Eid, so accordingly, voice would -- did not witness any drops. However, if we compare ourselves to the industry, we are -- we have the highest ARPU among the -- all the 3 operators.

Thanks, Ziad. Supun, on Dialog?

Yes, I think Dialog, we had structural changes implemented since 2023 and also the Airtel merger, which got completed in 2025. So all those continue to give benefits into the business, both direct cost and OpEx. So the Q2 improvements that you have seen is partly through those structural changes giving results as well as some of the corrections that we have done in the market, especially further tightening the acquisition engine and incentives. So overall, this would continue the pace at which we would get further improvements in margins. I wouldn't commit at this stage because there are also headwinds coming from, especially on energy prices. The electricity prices have been increased in the country. So some of those savings would nullify the synergies that -- the increases that we are going to get, especially latter part of second quarter and then second half of the year. But overall, these numbers are sustainable, and we would continue to push them forward.

Thanks, Supun.

Okay. I think -- thank you, Luis. I think next up, we have Prem from CGSI.

Three questions from me, please. First of all, why did your tax bill jump quite considerably quarter-on-quarter? I would admit that first quarter was a bit low, but this quarter, you seem to have jumped by quite a bit. So color on that would be great. And sticking on the subject of tax, you mentioned earlier in your presentation that the upstreaming of dividends from Robi was attracting extra withholding taxes. How significant was that? And is there any other way of getting the cash out without this impact of withholding tax for us? The third question is, could we get some color around EDOTCO? It seems to be quite a red quarter this time around. So what's going on there? And what's the outlook? If you could get some color on that, that would be great.

Maybe I -- yes.

Maybe I -- yes, I can take the tax question. Thanks, Prem. Yes, you are spot on in terms of looking at the tax trend for us, and it's always quite lumpy in the sense from quarter-on-quarter. Just to remind ourselves, last quarter, we actually have a one-off credit coming from Robi because of part of the settlement that we did with the local tax authorities in Bangladesh, roughly around MYR 12 million that was also -- came in, in quarter 1. So that brought the base down in quarter 1. Then, for quarter 2, I did allude to paying withholding tax. This is part of the leakage that we will have when we are receiving dividends from a foreign entity coming into Malaysia. And our withholding tax impact for the quarter 2 is not just on Robi dividend that was upstream. It is also from Smart. They came in. So roughly around MYR 50 million withholding tax. And this is quite lumpy depending on when we receive the dividend. And moving forward, as we alluded that we are continuing to have strong commitment from Dialog for quarterly dividend declaration, and that will also mean we will have to also bear some across the group. So anyway, overall withholding tax impact, it is not something trend. It will be in line with the dividend that we receive.

Okay. So Prem, I'll take the EDOTCO question. So EDOTCO numbers, yes, you're right, year-on-year, it is red. And that's mainly because EDOTCO reporting currency is in ringgit. And the ringgit has strengthened against all the other currencies that -- or markets that EDOTCO operates in, in particular, Bangladesh. So if you were to normalize, or you take it on a constant currency basis, the NTCs of the tower companies outside of Malaysia, they've actually grown year-on-year, right? In Malaysia, though, obviously, Malaysia will not get impacted by the ForEx because it is -- reporting currency is the same. We saw a little bit of a decline in quarter 2 compared to quarter 1, and that's mainly because of one-off settlements that happened with certain customers in Malaysia that happened in quarter 2, right? Other than that, from an operating perspective, they're still very conscious and very cost -- their cost management is still very, very strong. And as such, which is why on the profit, they may be a little bit lower for the first half of 2026 compared to the same period last year. EDOTCO is very confident of catching up for the remaining of the year.

Perfect. And just to follow up, 2 things. One on the tax issue because the shift in tax was MYR 80 million quarter-on-quarter. What you've explained is worth about 1/3 of that. So what else happened? Or is it that the underlying profits of all of these things of all these subsidiaries are so much better that they incurred higher taxes? Is that the way we should be looking at it?

Yes, correct. I think the other operating company because we have strong profits coming. So this was also part of the tax that we have got a provision accordingly.

Okay. And on the EDOTCO settlements, they paid out settlements in the second quarter. Is that because they didn't meet certain SLAs? Or what was that?

Okay. And do we have Adlan on the line? Okay. Sorry, we actually have Adlan, the EDOTCO CEO on the line. I should have asked him to answer the first bit as well. So maybe I will ask Adlan to now jump in and answer this. Yes, yes, I shouldn't be looking away. He is on there. Adlan, over to you, please.