Axiata’s firm regional market presence to boost 3Q performance

Axiata’s regional exposures with a focus on emerging countries may deliver great growth potentials, says HLIB


AXIATA Group Bhd is expected to record positive results in its third quarter (3Q) ended Sept 30 this year due to its market leadership in most regional markets, according to JF Apex Securities Bhd research analyst Lee Cherng Wee.

The research house added that there will be no major adverse impact from the collapse in the merger talks between the group and Norway’s Telenor ASA, other than some due diligence/merger costs.

“There will be foreign-exchange impacts for Axiata in every quarter, but only volatile movement in foreign currencies will bring significant impact. Celcom is the biggest contributor to Axiata’s revenue and is expected to grow its earnings,” he told The Malaysian Reserve.

In the 2Q, Celcom’s revenue declined 3.5% year-on-year (YoY) to RM1.62 billion mainly due to decrease in legacy voice and SMS revenue.

Celcom currently contributes roughly more than 50% to Axiata’s earnings.

Separately, Axiata’s subsidiary, PT XL Axiata Tbk’s core net profit of 505 billion rupiah (RM149 million) for the first nine months (9M19) came in above expectations due to lower than expected depreciation and amortisation, and interest expense, according to Hong Leong Investment Bank Bhd (HLIB).

Data was the main revenue driver with 33% gain, while legacy services were still in decline.

“Data now accounted for 88% of service revenue in 9M19, and in a more resilient position versus peers to weather the effects of declining legacy revenues,” HLIB stated in a research note yesterday.

Indonesia’s second-largest telecommunication company (telco) by subscribers, however, lost 1.1 million customers quarter-on-quarter (QoQ) to 55.5 million subscribers due to increased competition in the nation.

“Prepaid average revenue per user expanded by 3% QoQ (or 1,000 rupiah) to 34,000 rupiah, while 2,000 rupiah) to 111,000 rupiah. With the improved coverage, 88% of total base or 49 million are data users generating 2,386PB of total traffic in 9M19, up 56% YoY,” it said.

HLIB added that, as affordability increased, smartphone users also grew 8% YoY, reaching 48 million users or 86% of the total base.

HLIB has placed a target price of RM4.85 on Axiata on the back of unchanged sum-of-parts derived valuation pending an analyst briefing in conjunction with Axiata’s 3Q19 results announcement on Nov 28.

“We like Axiata’s regional exposures with a focus on emerging countries which may deliver great growth potentials. Regulatory and execution risks are major concerns. Asset monetisation through tower listing is a catalyst,” HLIB noted.

Axiata’s share price closed unchanged yesterday at RM4.30, valuing the telco at RM39 billion.

The group’s primarily provides mobile and infrastructure services and operates in four main geographic areas: Malaysia, Indonesia, Bangladesh and Sri Lanka.

Mobile services are derived through controlling interests in five mobile operators: Celcom in Malaysia, XL in Indonesia, Dialog Axiata plc in Sri Lanka, Robi Axiata Ltd in Bangladesh and Smart Axiata Co Ltd in Cambodia.