AXIATA GROUP BHD

By UOBKayHian Malaysia Research Hold (maintained)

Target price: RM5.45

UOBKAYHIAN Malaysia Research expects telecommunications player Axiata Group Bhd to offer moderate growth prospects in the near to medium term.

This is mainly due to the group’s focus on cost optimisation measures, which are expected to save about RM5bil over the next five years. Apart from that, Axiata will be focusing on improving efficiencies in its key assets including unlisted telco tower, edotco Group Sdn Bhd.

The company is also anticipated to provide moderate dividends, moving forward.

“Against a backdrop of well entrenched institutional shareholding, the company will also likely balance its growth strategy with a moderate dividend outlook.

“After two years of depressed dividend payouts of between 50% and 60% in 2016 and 2017, the company is expected to step up dividend payout for 2018-2019.

“We expect it to match 2014-2015’s high dividend payout of 80%-85%. Based on 80% dividend payout, this translates to a moderate net dividend yield of 2%-3% over the next two years,” said UOBKayHian in a note.

Cashflow-wise, the research house said Axiata could survive in the near term without its perennial favourite cashcow Celcom, as edotco and the other operating assets reach maturity.

“We note that edotco and NCell Pvt Ltd have been flowing up dividend and cash, respectively, to investment holding in the past year. This has helped to partly offset the absence of dividend flow from Celcom in the past two years,” it said.

Moving forward, Axiata’s wild card is its potential merger between Telekom Malaysia Bhd (TM).

To note, there were previous media reports that Celcom could be merged with sister company TM, given synergistic savings and move towards fixed-and-wireless convergence.

On capex, UOBKayHian said the intensity remained relatively elevated for the next two years, at 26% of Axiata’s total revenue.

“Based on a capex expectation of RM6.5bil annually, Axiata is expected to spend on RobiAirtel Bangladesh 4G rollout, solidifying PT XL Axiata Tbk’s ex-Java position with 40% of the capex to be spent outside Java and allocation of 700MHz spectrum in Malaysia sometime this year,” it said.