Axiata will reduce reliance on Celcom, says Moody’s

Contribution of its domestic mobile unit to Axiata’s revenue has steadily declined to 26% for 1H20


AXIATA Group Bhd’s reliance on Celcom Axiata Bhd is expected to decline as the group’s investments in emerging and frontier markets mature and contribute more meaningfully to overall credit quality, according to Moody’s Investors Service Inc.

The rating agency noted that Axiata’s subsidiaries have already accounted for a growing portion of its Ebitda due to a steady decline from Celcom’s revenue contribution to the group over the years.

“Celcom’s contribution to Axiata’s revenue has steadily declined to 26% for the first half of 2020 (1H20) from 30% in 2018 and 35% in 2015.

“Given the maturity of the Malaysian mobile market, we expect most growth to come from other markets, which will support consolidated interest coverage. Nonetheless, we expect Celcom to continue to account for around a quarter of consolidated revenue in 2020 to 2021,” Moody’s stated in the report recently.

It added that Celcom’s operating and financial profile has declined as it lagged competitors on network modernisation investments between 2015 and 2017.

“Although Celcom remains a key cash contributor for Axiata through dividends, the contribution of other frontier market subsidiaries is increasing, which reduces Axiata’s reliance on its Malaysian subsidiary,” it said.

The firm said the group’s revenue will grow between 2% and 2.5% in 2020 and 2021, despite a low single-digit revenue decline at its domestic mobile unit, Celcom.

Growth in the group’s emerging and frontier market operations, including stable earnings from edotco Group Sdn Bhd, will help mitigate revenue contraction at Celcom.

The firm also expects Axiata to continue seeking in-country consolidation opportunities, as well as smaller-scale acquisitions to grow inorganically, which if debt funded it would increase the company’s leverage.

Moody’s said Axiata’s tower subsidiary edotco will also continue to grow through debt-funded acquisitions which could “distort leverage metrics” at the consolidated Axiata group.

“Management remains committed to maintaining Axiata’s reported gross leverage below 2.5 times over the next two to three years,” it added.

Robi Axiata Ltd in Bangladesh and Dialog Axiata plc in Sri Lanka will also drive the increase in Axiata’s frontier market earnings over the next two years.

Lower penetrations levels in those markets — mainly for data usage — and the potential for extremely high levels of saturation due to the prevalence of multiple SIM cards will support the increase in earnings from emerging and frontier markets outside Malaysia.

“We expect Axiata can accommodate frontier market risks within its current credit profile, given the financial discipline across the group and at the key operating subsidiaries.

“Business growth at PT XL Axiata Tbk, Robi, Dialog and Ncell Axiata Ltd has been achieved with reported leverage of under 2.5 times to three times since 2013.

“Moreover, Axiata has received dividends from its investments in emerging market telecommunication companies, which signal the gradual maturity of those markets,” Moody’s added.