Possible re-merger with TM could reenergise Axiata’s earnings prospects

KUALA LUMPUR: Expectations of a value-enhancing re-merger with Telekom Malaysia Bhd (TM) could reduce re-energise Axiata Group Bhd’s (Axiata) earnings prospects, analysts project.

AmInvestment Bank Bhd’s (AmInvestment Bank) highlighted some key takeaways following Axiata’s Analyst and Investor Day recently, such as the group unveiling its revamped triple core focus on convergence and digitalisation under Telco 3.0, new digital businesses and tower infrastructure.

According to the research team, Axiata’s focus on cost optimisation, which also involves proceeding with the group’s core digitalisation and optimising the group’s capital structure with a savings/avoidance target of RM5 billion from 2017 to 2021.

The research firm also noted that digital platforms, which were experimental in the past, will now be focused on financial services, media/entertainment/advert, enterprise/internet of things (IoT) and application programming interface (API) platforms.

“Global challenge of successfully launching digital platforms against established over-the-top (OTT) players such as Apple Pay, Samsung Pay and Ali Baba while governments attempt to level the digital playing field with taxation and content control,” it added.

All in, AmInvestment Bank maintained its ‘buy’ call on Axiata. This was “on expectations of a value-enhancing re-merger with TM which could reduce the valuation differential with its peers and re-energise its earnings prospects. This may be a longer term possibility amidst the sensitivities inherent in Axiata’s foreign exposure in operations and top management talent,” the research firm said.

Meanwhile, Axiata’s total year to date (YTD) for the nine months of financial year 2017 revenue was up 15 per cent to RM18.1 billion from RM15.8 billion in the corresponding period last year from strong contribution from all the group’s main operating companies. As for the group’s YTD profit after tax (PAT), it improved by 14.1 per cent to RM1.1 billion on the back of significant earnings before interest, tax, depreciation and amortisation (EBITDA) improvements and forex translation gains.