Axiata Group remains Maybank IB’s top pick

KUALA LUMPUR: Axiata Group Bhd remains Maybank Investment Bank Bhd’s (Maybank IB) top pick among Malaysian telcos.

This is despite Axiata incurring a one-off impairment of up to RM3 billion following the merger of India’s Idea Cellular and Vodafone India.

“Axiata remains our preferred pick among the Malaysian telcos, with earnings likely having bottomed in first quarter (Q1),” said Maybank IB.

The firm reiterated its “buy” call on Axiata with an unchanged target price of RM4.80.

Maybank IB said Axiata would incur a non-cash impairment charge following Idea Cellular’s merger with Vodafone India, which was expected to be completed this month.

It added that Idea’s quarterly losses of about RM100 million would no longer be equity accounted upon completion of the deal.

It was earlier announced that India’s Department of Telecommunications had approved the proposed merger.

The reclassification of Idea from associate to investment would require Axiata to mark-tomarket the value of its Idea stake, said Maybank IB.

Axiata’s stake in the merged entity would be diluted to just eight per cent post-merger completion, from 20 per cent prior to merger undertaking.

Given Idea’s share price decline in recent years, Maybank IB opined that Axiata estimated the potential impairment in the range of RM1.5 billion to RM3 billion.

The impairment was non-cash, and would be treated as an exceptional item — thus had no impact on Axiata’s dividend, said Maybank IB.

Meanwhile, Axiata’s Indonesian arm PT XL Axiata reported second quarter revenue of 5.55 trillion Indonesian rupiah, down 2.2 per cent year-on-year, due to lower average revenue per user.

PublicInvest Research in a note said after delivering five quarters of normalised net profit, XL was back in the red, posting a normalised net loss of 75 billion rupiah (RM21.13 million) for the second quarter, mainly due to lower revenue and higher depreciation and amortisation expenses.

The research house said at earnings before interest, taxes, depreciation and amortisation level, the results were below its expectation.

However, it maintained its earnings forecasts on XL, expecting prepaid SIM registration will result in a healthier industry growth in the second half.

PublicInvest reiterated its “neutral” rating on Axiata, with an unchanged target price of RM5.