Axiata Group Bhd is refining its corporate strategy, as its stock remains a key sector laggard, including balance sheet develeraging and asset delayering as well as monetisation, with earnings tailwinds from a more positive macroeconomic outlook in 2024.
This is the central themes of corporate strategy finetuning mentioned in Axiata Group’s Analyst & Investor Day 2023 (AAID 2023), according to RHB Investment Bank Bhd (RHB IB).
“The stock remains a key sector laggard, with forward EV/EBITDA at -2SD from its historical mean.”
In its Company Update note, it keeps its BUY call and SOP-based TP of RM3.03, up by 28% and 4% FY24F yield.
“Our FY23F-26F have been adjusted, from decrease of 6% to decrease of 13% to exclude Ncell following the recent disposal and revisions to LinkNet’s estimates, while our TP includes a 2% ESG premium.”
\RHB IB noted that some refinements to Axiata 5.0, as the the group’s strategic blueprint has undergone a refresh to align with the move into a ‘Multi-Platform-Builder’.
“The overriding headline targets remain ie a sustainable DPS of 10 sen, high single digit ROE and net debt/EBITDA of 2.5x by 2025. Aside from balance sheet deleveraging, cost-rescaling initiatives could also see corporate centre cost cut by 20%.
“Broadly, management sees the effects of macroeconomic headwinds impacting the group over the last two years (high interest rate, regional FX weakness and inflationary pressures) receding in FY24F,” it said.
Other than that, the research house said among the operating companies, the strongest narratives were on Robi (Bangladesh) and XL Axiata (EXCL IJ, BUY, TP: IDR3,140) on continued market price repair into 2024, and Smart (Cambodia) on ARPU uplifts.
“Dialog’s (Sri Lanka) earnings are also on track to recover to pre-crisis level. Meanwhile, stronger CelcomDigi (CDB MK, NEUTRAL, TP: MYR4.70) merger synergies should also pull through next year, driving stronger associate contributions.
It also said the delayering of its Indonesia businesses will create the second largest fibre infrastructure company (FibreCo) in the country via
Linknet (LN), allowing for rapid fibre deployment and monetisation (target of 8 million homes passed in five years).
“Meanwhile, XL Axiata’s role as a service telecommunication company (ServeCo) (via the transfer of LN’s residential subs) would see it transform into one of the largest fibre broadband players with 1 million home fibre subs, reinforcing its fixed-mobile convergence (FMC)
aspiration.
“The deal is still subject to a fairness opinion and local regulatory approvals, and is slated for completion by 2Q24. On edotCo Group, the focus would be on bringing in strategic investors that can value add with the deleveraging process to be completed by mid-2024.”
The key risks to its call are competition, weaker-than-expected earnings, regulatory setbacks, and FX.
