Axiata Group Bhd
(Oct 9, RM7.04)
Reiterate “neutral” with a target price (TP) of RM6.92: Axiata Group Bhd chief executive officer (CEO) Datuk Seri Jamaludin Ibrahim has indicated Axiata is near the end of phase two (2011 to 2015) of its transformation journey to become a regional champion. Despite short-term challenges such as data leadership investment (which affected margins), challenges faced by Celcom, PT XL Axiata Tbk integration and forex impact, Axiata expects to be operationally stronger in 2015 with IT and network issues at Celcom resolved, full-year benefits of Axis acquisition and robust operational capability at Smart Axiata Co Ltd (Cambodia), Dialog Axiata PLC (Sri Lanka) and Robi Axiata Ltd (Bangladesh).
Its CEO’s key messages were: i) Axiata has performed well, and can and will perform well in the future; ii) there is still growth with potential valuation upside; iii) Axiata has a highly resilient portfolio and has potential to be even more robust in the future; (iv) has solid cash generation with a strong balance sheet to support growth and dividends; and v) clear short-term plans with future-proof strategies.
Meanwhile, Axiata chief financial officer Chari TVT highlighted that the group is moving towards a more balanced portfolio of dividend play and growth (currently more on growth). Its key focus areas to achieve optimum structure are: i) capital structure; ii) risk management; iii) working capital management; iv) maintaining of rating; and v) dividend policy (sustainable progressive dividend payout). Axiata has adopted an end-to-end multi-pronged approach to increase subscriber data usage with increased profitability such as driving revenue (for example, segment-based pricing and targeted bundling) and improving operational expenditure and capital expenditure efficiency (for example, network modernisation and capacity management).
Axiata’s telco tower unit, edotco (M) Sdn Bhd, owns/operates more than 12,500 towers — approximately in Malaysia (3,300), Bangladesh (5,700), Cambodia (1,500) and Sri Lanka (2,000). Edotco plans to complete strategic business unit carve-out for all assets by end-2014. Management highlighted Celcom’s challenges in the past year such as no new launches in the past 11 months due to IT system transformation, vendor issues and network upgrading impact in Sabah and Sarawak, and eastern peninsula states. Going forward, Celcom’s performance will improve with the completion of IT transformation and launches of new services over the next few months.
We reiterate our “neutral” call on Axiata with a TP of RM6.92 based on sum-of-parts valuation.
While we like Axiata’s regional growth story, we believe forex volatility, heightened competition in Bangladesh and Sri Lanka, and XL-Axis’ integration impact may affect the group’s near-term financial performance. — PublicInvest Research, Oct 9
This article first appeared in The Edge Financial Daily, on October 10, 2014.