Axiata could swing to a loss in FY19, says AmInvestment

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KUALA LUMPUR (April 23): Axiata Group Bhd could swing to a loss in its financial year ending Dec 31, 2019 (FY19), depending on the outcome of the appeal of its 80%-owned unit against the Nepal Supreme Court's order of outstanding capital gains tax (CGT) totalling RM1.45 billion, said AmInvestment Bank Research today.

In a note this morning, the research house forecasts that Axiata's FY19 net debt to earnings before interests, taxes, depreciation and amortisation (Ebitda) could rise to 1.7 times from 1.6 times, and that its FY19 net profit of RM1.3 billion could reverse to a loss of RM200 million.

"Given the baffling [Nepal] Supreme Court verdict, we remain uncertain of the likelihood of success for Ncell [Private Ltd]'s appeal amid the local political and regulatory regime. Hence, Axiata's regulatory risk profile remains elevated at this stage.

"Even though Axiata currently trades at a bargain FY19F enterprise value to Ebitda (EV/EBITDA) of five times versus Maxis' 12 times, the group's deteriorating overseas risk profile amid intense mobile completion both locally and regionally could limit any medium-term share price upside," the research firm said.

Additionally, the government's intention to reduce Khazanah Nasional Bhd's holdings in government-linked companies currently casts shadows of a share overhang, it added.

AmInvestment Bank reiterated its "hold" call on Axiata, with unchanged forecasts and a fair value of RM3.86 per share.

Shares in Axiata rose today in thin volume. At 10.45am, the counter was trading six sen or 1.6% higher at RM3.94 with a total of 109,200 shares done, valuing the group at RM35.22 billion.

Yesterday, Axiata said its 80%-owned unit, Ncell, is challenging the decision by the Nepali tax authority to seek 39.06 billion Nepalese rupees (RM1.45 billion) as CGT from the company.

Ncell has filed a writ petition to Nepal's Supreme Court against the country's Large Taxpayer Office (LTPO), Inland Revenue Department and Ministry of Finance. The application was accepted by the court yesterday.

It said Ncell had been duly advised by its professional advisers that there are supportable grounds to challenge the legality of the LTPO tax claim.