Axiata’s recapitalisation exercise a positive

Telco’s revised net asset value set to increase

“We continue to view Axiata’s overall riskreward as being positive, with net profit recovery and balance sheet repair being potential re-rating catalysts.” Maybank Investment Bank Research

JAYA: Axiata Group Bhd should be seen as an asset-monetisation play rather than an earnings play, analysts say.

CGS-CIMB Research said the move by the regional telco group to sell its 80% stake in Ncell Axiata Ltd in Nepal last year and the deconsolidation of Celcom in 2022 are part of a recapitalisation exercise by Axiata, which should lead to its revised net asset value (RNAV) increasing and the discount to share price narrow.

“We believe Axiata has begun the journey towards realising its RNAV, and should it successfully monetise a significant portion of its 63% stake in edotco (the tower services unit of Axiata Group) as part of its recapitalisation exercise, then its current 49% discount to RNAV should narrow further, in our view,” the research house stated in a report on the group controlled by sovereign wealth fund Khazanah Nasional Bhd.

CGS-CIMB Research added the monetisation of edotco could include a partial stake sale to a private equity this year followed by a listing of edotco over a two to threeyear timeframe.

This should culminate with a distribution in specie of stakes in Celcom, XL Axiata and edotco (which make up 99% of CGSCIMB Research’s forecast RNAV) to shareholders.

Maybank Investment Bank Research (Maybank IB Research) stated its simulation indicates that Axiata could come close to achieving its target of 2.5 times net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) by keeping a simple majority stake in edotco post-equity raising exercise by the latter.

Any equity raising at Indonesia’s PT Link Net Tbk, the research house added, would further alleviate Axiata’s balance sheet concerns.

“We continue to view Axiata’s overall risk-reward as being positive, with net profit recovery and balance sheet repair being potential re-rating catalysts,” Maybank IB Research stated in a report on the telco group.

The research house noted every 10% new edotco equity raised would lower Axiata’s net debt to Ebitda by 0.11 times-0.2 times, while every 10% new Link Net equity raised would lower net debt to Ebitda by 0.03 times-0.06 times.

The immediate concern investors have about Axiata is whether it will make further provisions for the fourth quarter ending December 2023 (4Q23) that could negatively surprise the market.

The group made Rm1bil worth of provision for asset impairments related to Ncell in 3Q23 for discontinuing operations but Axiata’s Dec 1, 2023 announcement pertaining to the sale of Ncell stated a proforma loss of Rm1.9bil on disposal (including Rm1.5bil in provisions taken in the nine months of the year) had the transaction been effected in 2022.

Axiata is also carrying Rm1.3bil in goodwill for Link Net, which was acquired in 2022. Given the reduced performance at Link Net last year, CGS-CIMB Research does not rule out impairment charges in 4Q23.

Nevertheless, the research house retained its “add” call on Axiata with an increased target price (TP) of RM3.25 a share and adjusted its RNAV to RM5.35 per share (from RM5.60 previously), to take into account the disposal of Ncell.

“A 3.7% dividend yield provides downside support,” the research outfit noted.

Maybank IB Research has a RM3 a share TP on Axiata, adding the telco group remains committed to a minimum 10 sen dividend per share annually.