RHB Research retains ‘buy’ stance on Axiata with target price of RM3.40

The merger between Axiata Group Bhd’s 82.3 per cent-owned Sri Lankan subsidiary Dialog Axiata Plc and Bharti Airtel Ltd’s Bharti Airtel Lanka Plc (Airtel Lanka) suggests positive earnings accretion for the group for the financial year 2025.

RHB Investment Bank Bhd (RHB Research) said good synergies were expected from the merger, with the overall impact on Axiata’s earnings to be manageable in the medium term.

“We continue to like Axiata, with the earnings rebound and balance sheet deleveraging thesis as key share price catalysts,” it said in a note yesterday.

The research firm maintained its “buy” call on the stock with a RM3.40 target price.

The merger is expected to be completed by the third quarter.

Post-merger, Axiata’s stake in Dialog will be diluted to 72.57 per cent. Bharti Airtel will be the second-largest shareholder with a 10.3 per cent stake.

“Dialog sees a valuation uplift of 53 per cent after taking into account integration costs and synergies.”

RHB Research said the larger spectrum portfolio would contribute to lower cost per gigabyte with more efficient capital expenditure (capex) spending.

Airtel Lanka currently has fewer than 2,400 sites versus Dialog’s 5,500.

“It intends to decommission 1,400 overlapping Airtel Lanka sites. With a dual-brand strategy adopted, existing customers will keep their current plans.

“The management expects integration capex of 35 million rupees in financial years 2024-2025 on top of business-as-usual capex of 20 billion to 25 billion rupees for financial year 2024.

“There will be an eight per cent uplift in Dialog’s revenue from the merger, with the management guiding for Airtel Lanka to break even within six to 12 months (currently loss-making) of consolidation,” it added.