Axiata Group Bhd
Buy. Target price: RM3.50
AXIATA had announced in its Q4’23 results release, of edotco’s intention to exit Myanmar. The Myanmar operations delivered RM280 million of EBITDA (15% of edotco’s EBITDA) in FY23, and are now being reported as discontinued operations in Axiata’s financials. Axiata expects to complete the transaction in the next 12 months. We believe the Myanmar exit is likely a precursor to any potential equity-raising at edotco, given the constraints faced by most international funds on investing in Myanmar. This would in turn, possibly imply additional time required to complete edotco’s equity raising, in our view.
Recall balance sheet leverage is a major overhang for Axiata, in our view, with net debt to EBITDA having climbed to 3.1x at end Q4’23. Our previous simulation indicates every 10% new edotco equity raised (capped at 26% to keep edotco consolidated) would lower Axiata’s net debt to EBITDA by 0.11x-0.20x. We do not expect Axiata’s 10sen FY24E DPS (amounting to RM918 million) to be at risk from any hypothetical delay in edotco fund raising, given improved enterprise FCF (RM2.6 billion) from EBITDA recovery at most op-cos, along with reduced pressure to repay debt.
Given its conglomerate-like structure, Axiata is possibly more inclined on a relative basis to participate in M&As. Axiata has initiated a number of M&As in recent years, both at the holding-co level and among its op-cos. Results have unfortunately been mixed, with the supposed accretion not materialising for some transactions. Reiterate BUY with an unchanged RM3.50 SOP-based TP.
There are several risk factors for our earnings estimates, price target, and rating for Axiata. Competitive developments such as price wars would adversely affect monetisation and thus profitability.