Based on HY23 financial results, the operating environment remained challenging in Q1 characterized by the depreciation of the local currency, unstable and multiple exchange rates, high inflation and the pass-through impacts of rising global inflation together with supply disruptions arising from COVID-19 and the Russia/Ukraine conflict. The Group was affected by the high local currency interest rates during the first quarter and management embarked on an aggressive repayment program to reduce the resultant finance costs. However, Q2 witnessed subsided inflation and exchange rate volatility, and this resulted in increased foreign currency transactions. Going forward, growth of the business is expected to be driven by a wider TV Sales and Transerv footprint as well as backward integration. Significant progress has been made in the construction of the new bedding factory facility which is set to open in March 2023. Restapedic volumes are anticipated to remain firm especially with the possibility of expanding into export markets. On this backdrop, we forecast Axia revenue to increase by 5% y/y to circa US$214.09mn in FY23. We expect EBITDA margin to remain flat at 12% translating to an EBITDA of US$25.69mn. PAT for the Group is expected to close the year FY23 at US$19.27mn translating to a net margin of 9%.
We forecast Axia to trade on a P/E (+1) of 5.1x to 2023, compared to peers at an average P/E (+1) of 12.99x, and EV/EBITDA (+1) of 4.3x compared to peers at an average EV/EBITDA (+1) of 7.50x. Using a combination of multiples and a DCF valuation approach we have arrived at a target price of US$0.19 for Axia, implying upside of 93% at current levels. We therefore maintain our BUY recommendation.
