CGS-CIMB believed Axiata has begun on the journey towards realising its revalued net asset value (RNAV), and has increased target price (TP) for Axiata Group Bhd to RM3.25 from RM2.72, on roll forward of basis year.
It said the realisation of its RNAV is likely with deconsolidation of Celcom in 2022, disposal of NCell in 2023, and likely monetisation of edotco in 2024F.
“The monetisation of a significant portion of its 63% stake in edotco Group Sdn Bhd, as part of its recapitalisaiton exercise, which is currently ongoing.
“We expect asset monetisation to reduce 49% discount to RNAV and drive re-rating with 3.7% FY24F dividend yield to provide support.
“Our preferred path to full realisation of its RNAV would be partial monetisation of its edotco stake via the entry of a private equity partner in 2024’s recapitalisation exercise.
“The listing of edotco over a 2 to 3 year timeframe, and, finally, distribution in specie of stakes in Celcom Bhd, PT XL Axiata Tbk and edotco, which make up 99% of our RNAV, to shareholders.
“While each step is undoubtedly complex and will take time, we believe the deconsolidation of Celcom in 2022, the disposal of Nepal-based telecommunications operator Ncell Pte Ltd in 2023, and the ongoing recapitalization of edotco have, in our view, set a clear strategic direction,” it said in its Company Note today (Feb 5).
The stockbroker said its higher TP of RM3.25 was derived from enterprise value to its earnings before interest, taxes, depreciation and amortization EV/EBITDA 5.6x FY25F compared to 5.6x FY24F previously.
It reiterated its ADD call on Axiata with RNAV for Axiata is adjusted to RM5.35 per share from RM5.60 previously, to take into account the disposal of NCell, which was completed in Dec 2023.
“A 3.7% dividend yield provides downside support in our view. We see the deconsolidation and monetisation of its assets as the key re-rating catalyst for Axiata’s shares.
“Downside risks are severe deterioration in the operating environment of its various operating companies (opcos) and significantly lower multiples for its assets upon monetisation, and a shift away from its asset monetisation strategy,” it added.
Meanwhile, CGS-CIMB said it is unclear whether Axiata will take provisions in 4Q23F, as is typically the case in the fourth quarter in the financial year.
“While there was a slightly over RM1 billion provision for asset impairments related to NCell taken in 3Q23 under discontinuing operations, it is unclear as to whether there may be some remnants left on the books.
“Axiata’s 1 Dec 2023 announcement pertaining to the 2023 disposal of NCell stated a proforma loss of RM1.9 billion on disposal (including RM1.5 billion in provisions taken in 9M23) had the transaction been effected in 2022.
“Elsewhere, Axiata is carrying RM1.3 billion in goodwill for Link Net, which was acquired in 2022.
“Given the reduced performance at Link Net through 2023, with a 31% decrease year-on-year (YoY) of earnings before interest, taxes, depreciation, and amortization (EBITDA) in 3Q23, we would not rule out impairment charges for it.
“Nonetheless, we see Axiata as an asset monetisation play rather than an earnings play,” it said.
