Change in tone in favour of monetisation sets the ball rolling Management’s shift in tone towards asset monetisation represents a key change for Axiata, said CGSCIMB in a note today (Sept 26).
While included in management’s “Opportunities” slide since the 4Q22 results presentation in Feb 2023, its tone on monetising assets has since changed
Axiata seemed more willing to discuss the topic at its 2Q23 results call and in subsequent conference calls CGSCIMB hosted for investors with management. As they noted in their report of 18 May 2023, monetising its assets would be a key rerating catalyst, especially as earnings visibility is complicated by its numerous operating subsidiaries, each subject to differing operating, macroeconomic and regulatory environments.
Edotco the obvious opportunity
CGSCIMB believes 63%-owned infrastructure asset, edotco, presents the key monetisation opportunity for Axiata as they understand demand amongst private equity (PE) for such assets remains healthy, and more importantly edotco is sizeable (31%) within our RNAV estimate for Axiata.
CGSCIMB’s valuation for edotco is based on a 15x FY24F EV/EBITDA, which compares to 16x for global peers, while Indonesian listed tower companies under our coverage trade on 10.2x FY24F EV/EBITDA.
While the elevated global interest rate environment may curtail multiples, the firm believes that at Axiata’s current price, the market is not factoring in a fair market, let alone an M&A type multiple on edotco within Axiata.
CGSCIMB is cognisant that M&A transactions require more than just willing buyers and sellers, with all important terms and conditions of how a target asset is managed going forward, often being a failing point.
As such, CGSCIMB is not factoring in a transaction in their target price, for now.
Upgrade from Hold to Add; higher target price of RM3.07
CGSCIMB upgrades their call on Axiata from Hold to Add as 1) they see a noticeable change in tone towards asset monetisation, which could reduce its 57% discount to our estimated RNAV of RM5.60/sh, 2) following an 18% correction in share price YTD (now down 49% over the past 5 years), and 3) a 5% increase in EBITDA has lifted the firm’s EV/EBITDA based (5.7x based on -1s.d. post-NCell acquisition in 2016) target price from RM2.90 to RM3.07, providing a 24% share price upside potential.
A 4% dividend yield, meanwhile, provides downside support, in our view. The key downside risks would be 1) regulatory/macroeconomic risks in its key operating markets impacting costs/cashflows 2) further legal losses in Nepal, and 3) higher interest rates raising finance costs.
