Axiata expects rebound in telecom industry

Telco sees long-term growth

FOR years, telecommunications providers have been dwelling in an endless cycle of capturing new customers. This includes deploying aggressive promotions to reach that goal.

But the coronavirus (Covid-19) fallout has changed the way in doing business and pushed contactless transactions and communication.

Sitting in the centre of this change, the telecommunications sector is set to benefit in the long term.

To benefit from this wave, Axiata Group Bhd is accelerating its digitalisation efforts, including growing its digital businesses such as e-wallet app Boost and transforming itself from a pure play mobile service provider into a digital telco that includes Internet of Things, cloud computing as well as smart home services.

Towards this end, Axiata said it has allocated about close to Rm1bil in capital expenditure this year for its digitisation efforts.

Axiata deputy CEO Datuk Izzaddin Idris says the group is positioning itself to capture such opportunities, especially when the economy recovers which will lead to a pick-up in demand from businesses for higher connectivity.

He says there are increasing numbers of online activity as more people adopt contactless transactions, which would benefit telecommunications companies, including Axiata, in the long run.

However, Izzadin says the group would need to absorb the current cost of providing such services that will impact its topline in the near term.

This is on top of the industry offering temporary free services during that lockdown period.

“During the movement control order, we gave out a lot of freebies we estimate at about Rm300mil in opportunity cost per month, which could impact our revenue.

“But we expect that when the economy recovers in the next 18 months, the telecommunications sector will grow faster, thanks to the acceleration of digitalisation by businesses and consumers,” he told reporters after the group’s AGM on Wednesday.

He says data consumption has surged almost 40% since the movement control order (MCO) and that connectivity will be an essential item that is similar to water and electricity in the long run.

“If we take advantage of these opportunities and we do it right when the economy grows, we will be growing faster than anybody else in the industry,” Izzaddin says.

Spinning of subsidiaries

Axiata is also eyeing to grow its e-wallet app Boost to become the first “unicorn” startup in Malaysia.

A unicorn is a startup company with a valuation of Us$1bil.

Axiata has many subsidiaries that are ripe for monetisation including an initial public offering of its tower company edotco, as well as Celcom.

It has put plans to list edotco on the back burner since 2018.

When asked about the listing of edotco, Izzaddin says the group is not in a rush to float the company on the stock exchange and that edotco has room to borrow more funds thanks to its strong balance sheet.

Edotco owns over 4,000 telecommunications towers in Malaysia and manages 5,000 more towers in the country.

Across the region, it owns over 27,000 towers, including those in Malaysia.

Izzadin points out that based on an investor’s interest last year to acquire a stake in edotco, the business was valued at around Rm8bil to Rm9bil.

“We have parties indicating a valuation much higher than that, easily Rm12bil,” he says.

In addition, Axiata is currently in the midst of listing its Bangladesh subsidiary Robi by the end of this year.

Izzaddin says Robi would be the fourth largest public offering in Bangladesh and the exercise is expected to be completed by the fourth quarter of this year.

Back to Boost, Izzaddin, which will be the CEO of Axiata starting January next year, says the group is working to partner up with a local player to apply for a digital banking license.

Last month, insurance company Great Eastern (GE) bought a 21.9% stake in Boost

Holdings for Us$70mil to provide digital financial services business across the region.

The transaction effectively gives Boost Holdings a valuation of Us$320mil (Rm1.368bil).

Boost Holdings also comprises Aspirasi, a micro-financing and micro-insurance digital financing provider that has over Us$20mil in loans disbursed to-date.

“The idea around Boost is to develop a digital financial ecosystem, and the digital bank will provide an anchor for us to provide products like micro-insurance.

“The good thing is GE has also agreed for us to co-curate new insurance products that serve the underserved market,” Izzadin says.

It was reported that Axiata has invested about Us$50mil to Us$100mil in the digital business.

Low interest rates

In the meantime, Axiata is taking advantage of the low interest rate to raise Us$1bil through a sukuk issuance, which has led some analysts to raise their earnings forecast for Axiata’s this year due to a lower finance cost.

Axiata says the sukuk will be used to retire some of its borrowings and as working capital for its subsidiaries.

Aminvestment Research says Axiata has a huge loan base and that the interest cost reduction will have a more significant earnings accretive impact compared with the lower depreciation charges.

“For FY20 forecast earnings, the impact is a slight 3% increase given the proportionately lower interest cost impact with the refinancing exercise expected to be completed by next month,” the research house says in a report.

The sukuk is one of the largest local sukuk issuance by a Malaysian corporation since 2015, which was done by national oil company Petronas.

“We expect that when the economy recovers in the next 18 months, the telecommunications sector will grow faster, thanks to the acceleration of digitalisation by businesses and consumers.” Datuk Izzaddin Idris