This article first appeared in The Edge Financial Daily on November 8, 2018

Axiata Group Bhd
(Nov 7, RM3.60)
Maintain buy with an unchanged fair value (FV) of RM5.32: We maintain our “buy” call on Axiata Group Bhd with unchanged forecasts and sum-of-parts FV of RM5.32 per share. This translates into an unchanged financial year 2019 forecast (FY19F) enterprise value to earnings before interest, taxes, depreciation and amortisation (Ebitda) of six times, one standard deviation below its three-year average of seven times.

We are neutral on Axiata’s decision to cancel its dividend reinvestment scheme (DRS) on the electable portion of its interim dividend of five sen, which goes ex today, due to the sharp drop in its share price.

On Sept 27, Axiata had set the issue price for its shares under its DRS at RM4.26 per share, which represented an 8.8% discount to the theoretical ex-dividend price of RM4.62 per share. This was based on the five-day volume weighted average market price up to the last trading day of Sept 26, prior to the price-fixing date.

However, Axiata’s share price has since declined by 25% to RM3.48 per share, which is 18% below the share exchange value for the dividends. Therefore, we view Axiata’s board decision as logical, given its existing shareholders would not be opting for the DRS under current circumstances.

Despite Axiata’s share price being on a downward trajectory for the past months, we remain optimistic on its longer-term fundamentals, given the improving revenue growth prospects for Celcom, XL, NCELL, Dialog and SMART.

In addition, Axiata currently trades at a bargain FY18F Ebitda of six times, below the three-year average of seven times and half of Digi’s 12 times. — AmInvestment Bank, Nov 7