No surprise in Axiata’s Idea impairment
KUCHING: Axiata Group Bhd’s (Axiata) non- cash impairment of RM3.3 billion in the carrying value of its investment in Idea Cellular Ltd ( Idea) is an expected cost to bear, analysts say.
AmInvestment Bank Bhd’s research arm (AmInvestment) noted that Axiata has announced of an estimated de-recognition loss of RM3.3 billion from the halving of its stake in the entity arising from the merger between the group’s 16.3 per cent- owned Idea and Vodafone Mobile Services Ltd.
“Given Axiata’s financial year 2018 forecast ( FY18F) core net profit of RM1.2 billion, this could translate to an all-in loss of RM2.1 billion. However, management has affirmed that the group’s FY18F dividends, which will not be affected by the impairment, will be based on FY15 payout ratio of 85 per cent on normalised net profit. While this appears high, we note that FY18F normalised earnings are half of FY15,” the research team said.
AmInvestment noted that if the merger is completed before the group’s 2QFY18 results announcement on August 24, Axiata would recognise the full impairment provision.
If completed after the results announcement, the group would likely recognise only half of the impairment with the balance accounted for in the following quarter.
“Given the equity reduction to a non- strategic investment level of 8.2 per cent in the Idea-Vodafone entity, Axiata has unconditionally and irrevocably relinquished its rights to appoint a representative on Idea’s board together with antidilution rights.
“For now, there are no disposal plans notwithstanding the absence of any lock-in exit period,” the research team added.
All in, it said: “We are mildly positive as Idea’s operating results will not be equity accounted postmerger, which should be positive for the group in the medium term given the likely continued losses of the combined entity against the background of India’s highly competitive environment driven by Reliance Jio.
“Idea, which contributed a FY17 loss of RM450 million to Axiata, is projected to incur a consensus loss of 78 billion rupees in the financial year ending March 2019 and 68 billion rupees in the financial year ending March 2020.”
Hence, the research team maintained Axiata’s forecasts for now, pending its results announcement. It also maintained its ‘buy’ call on the stock.