This article first appeared in The Edge Financial Daily on February 26, 2019

Axiata Group Bhd
(Feb 25, RM4.17)
Maintain buy with a target price (TP) of RM4.70: Axiata Group Bhd shares fell 24% last year — this, we believe, had largely priced in its

operating subsidiaries’ near-term weak performance. However, we expect to see gradual improvements in mobile operators Celcom and Axiata XL’s results in 2019 — key catalysts for the group’s share price recovery.

Asset monetisation of its stake in edotco and IdeaVodafone will be a bonus if this materialises. Axiata currently trades at an attractive valuation of 6.4 times enterprise value or earnings before interest, taxes, depreciation and amortisation — -1.5 standard deviation below its five-year average.

The group’s share price is highly correlated with Celcom’s performance, as the latter contributes more than 50% of the group’s earnings. We believe the consensus is still cautious about the near-term earnings weakness at Celcom.

In correlation, a strong turnaround in Celcom and XL’s performance will be key catalysts for the stock to rerate. The disposal of stakes in associates could also help pare down the group’s gearing level and proceeds can be redeployed for other purposes. The initial public offering of its tower arm, edotco, should also boost sentiments for the stock and provide a price discovery for the business unit.

Therefore, our TP of RM4.70 for Axiata is based on a sum-of-parts valuation. — AllianceDBS Research, Feb 25