‘Axiata’s strategy of having regional presence bear mixed results’

KUALA LUMPUR: Axiata Group Bhd’s (Axiata) strategy of having regional presence bear mixed results for the group, analysts opine, following the group’s FY18 results release.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Axiata’s strategy of having regional presence bear mixed results for the group as it exposes the group to various regulatory issues and execution risks as well as exposure to unfavourable impact on forex translation for each of the country the group operates in.

“To recall, earlier this month there is news report that Axiata and Ncell has been ordered by the Surpreme Court of Nepal to pay capital gains tax amounting to RM2.2 billion which arose from Axiata’s acquisition of Ncell from Telia Sonera.

“Fortunately, the group has keep the cost pressure at bay as the group places more emphasis on operating expenditure (opex) and capital expenditure (capex) efficiency,” MIDF Research said.

Meanwhile, the research arm viewed that future dividend payout ratio may fall below 85 per cent as seen in FY18 in anticipation of the tax bill payment as well as escalating capex commitment.

Given the lack of significant rerating catalysts, MIDF Research kept its ‘neutral’ call on the stock

On Axiata’s financial forecasts, MIDF Research maintained its FY19 earnings before interest, tax, depreciation and amortisation (EBITDA) assumptions at this juncture.

“However, we are assuming higher depreciation and amortisation charges and higher effective tax rate to better reflect the results thus far.

“All in, our FY9 earnings estimates has been revised lower to RM1.1068 billion.”

In contrast, Affin Hwang Investment Bank Bhd (AffinHwang Capital) raised its 2019E and 2020E earnings forecasts for Axiata by four and five per cent, respectively.

The research firm incorporated the group’s 2018 financial statements, lower 2019-20E depreciation and amortisation expenses following the asset impairment, completion of M1 disposal in 2019, leading to lower associates contribution and lower finance costs and latest currencies trend.

AffinHwang Capital maintained ‘hold’ on Axiata.

“While we expect gradual revenue gains in its key operating subsidiaries, the stiff competition and regulatory risks may continue to cap earnings growth and weigh on investor sentiment,” the research firm said.