KUALA LUMPUR (Nov 30): Analysts covering Axiata Bhd have raised their target prices (TPs) for the group to between RM3.76 and RM4 after it reported third quarter ended Sept 30, 2020 (3QFY20) results that were above their expectations.

Axiata’s net profit jumped to RM352.9 million from RM179.27 million in 3QFY19, while its revenue fell to RM6.11 billion from RM6.21 billion a year ago.

MIDF Research has revised its TP to RM3.88 from RM3.10.

“This is based on pegging FY21 [ending Dec 31, 2021] EBITDA [earnings before interest, tax, depreciation and amortisation] to revised EV [enterprise value]/EBITDA multiple of 5.6 times (previously 4.7 times). The higher multiple is one standard deviation below the group's two-year historical average of 6.1 times. We view that the higher multiple reflects the improvement in operational efficiency and cost control initiatives.

“Nonetheless, 9MFY20 financial performance still came in better than ours and consensus expectations, accounting for 92.8% and 85.0% of full year FY20 earnings estimates respectively. That being said, we expect 4QFY20 to trend lower as compared to 3QFY20 due to the challenging operating environment at some of its opcos [operating companies],” said its analyst Martin Foo Chuan Loong in a note.

While Axiata’s profitability continues to show progress, Foo noted that the profit margin of the group still falls below that of its listed peers.

“On another note, we view that the group’s exposure to the Covid-19 pandemic is more profound due to its regional presence. All factors considered; we are maintaining our recommendation to ‘neutral’ on Axiata,” said Foo.

Meanwhile, Hong Leong Investment Bank (HLIB) Research has reiterated a "hold" call with higher sum-of-parts (SOP)-derived TP of RM3.76 from RM3.36.

“We like its regional exposures with focus on emerging countries which may deliver great growth potential. However, regulatory (especially in Nepal) and execution risks are major concerns. With the mega merger called off, other potential corporate exercises that may unlock values include in-country consolidation, tower asset and digital businesses listings,” said HLIB Research analyst Tan J Young.

Furthermore, Kenanga Research has maintained a "market perform" call by raising its target price to RM4 from RM3.20.

“Our SOP-driven TP implies 4.6 times FY21 EV/fwd [forward] EBITDA, which is 2SD below the three-year average,” said Kenanga Research analyst Clement Chua.

However, Chua said there could be some earnings risk for the group in terms of extended losses from the digital segment and the sensitivity of its regional opcos against further movement restrictions.

“While the group aims to be more dividend generous, current yields might not be attractive to certain investors,” added Chua.

At the time of writing, shares in Axiata had risen five sen or 1.34% to RM3.78, valuing the group at RM34.66 billion. It saw some 3.85 million shares traded.