Axiata's dilution loss from Idea to lead to 10% fall in FY18 earnings estimate, says analyst

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KUALA LUMPUR (Feb 14): PublicInvest Research has maintained its "neutral" rating on Axiata Group Bhd at RM5.61 with a target price of RM5.60 and said Axiata will be recognising a loss on dilution amounting RM151.5 million in financial year 2018 (FY18), following the dilution of Axiata's shareholding in associate company, Idea Cellular (Idea), from 19.7% to 18.1%.

"This would lead to a 10% decline in our FY18 earnings estimate, though our core net profit forecast remains unchanged," the research house's Eltricia Foong said in a note today.

Her report added that post-merger with Vodafone, Axiata's stake in the merged entity would fall below 10% and would eventually dispose of its stake in Idea.

"Idea, India's 3rd largest wireless operator with circa 200 million subscribers, has plans to undertake a INR67.5 billion capital raising exercise that could involve preferential issuance of Idea shares, institutional placement or rights issue," she said.

As part of this exercise, Idea has raised INR32.5 billion through a preferential share issuance of 326.6 million shares at INR99.50 per share on Feb 12, 2018.

Axiata did not participate in this issuance and as a result, its shareholding in Idea has been diluted by 1.6% to 18.1%.

Foong said Idea continues to be a loss-making entity due to intense competition in India, following the entry of a new player that disrupted the industry's landscape.

She said Idea is in the process of completing its proposed merger with Vodafone (expected to complete by first half 2018).