Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on December 4, 2017

Axiata Group Bhd
(Nov 30, RM5.33)
Maintain hold call with an unchanged target price (TP) of RM5.50 per share:
The main surprise was that the digital business climbed up the priority list (both from capital allocation and earnings contribution) going forward, with the emphasis on profitability and returns. Risk-reward remains balanced for now. 

Axiata Group Bhd outlined its new “Triple core” long-term strategy, comprising telecommunications (focusing on convergence and digitalisation), the digital business (in the areas of fintech, ad tech, the enterprise Internet of Things and application platform), and infrastructure (mainly towers), in a 70-20-10 revenue split. Axiata is a proponent of convergence (both fixed mobile and fibre to homes). Monetisation remains key for each pillar, in particular that of the digital business, where the days of experimenting and incubating are now over.

Celcom, Axiata’s mobile operator in Malaysia, is gradually shifting its emphasis to customer experience (from a turnaround previously) in an attempt to attract/retain more high-value subscribers. XL, its mobile operator in Indonesia, has gained strong traction with its data-led proposition. Attention is presently centred on prepaid SIM registration, with management not expecting a sustained aggression from Telkomsel pertaining to data. Robi’s (its mobile operator in Bangladesh) merger integration has been better than expected both from synergies derived and timing. Dialog (its mobile operator in Sri Lanka) remains in a healthy position, although data yields remain suppressed due to competition. Its mobile operator in Nepal, Ncell, has had to manage the structurally declining international long-distance segment. Dividend repatriation remains a work in progress. 

Our earnings forecasts are unchanged. Our TP of RM5.50 is based on sum-of-parts with each operating entity valued using discounted cash flow. Axiata’s share price is up 12% year-to-date; its earnings recovery has already been priced in to a certain extent. — Maybank IB Research, Nov 29
 

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