Axiata’s elevated debt level to dent ‘generous’ dividends, says AHIB

Axiata Group Bhd may face some tough times ahead when it comes to its dividend payout.

In a note today (Sept 20), Affin Hwang Investment Bank Bhd (AHIB) noted that the group’s debt level remains elevated.

“We expect the group’s debt level to remain elevated over the medium-term, thereby affecting its ability to pay generous dividends,” it said.

Its dividend yield, which worked out at 3.8% in 2021 and 5.5% in 2022, is forecasted to be 2.4% in 2023, 2.2% in 2024 and 2.3% in 2025.

The report said that difficult market conditions, high interest rates and lackluster investor sentiment may continue to affect Axiata’s asset monetization and deleveraging initiatives, and cap its capacity to pay generous dividends.

The report noted that Axiata’s group CEO Vivek Sood had on Dec 2, 2022 presented “Axiata end game: unlocking future value” during the group’s annual investor day.

During the presentation, it said the management had highlighted its immediate priority to deliver on organic plan, deliver on M&A track, and deleverage balance sheet. The team also spoke about its transformation plans which include delayering the telco assets, accelerating the journey to TechCo and value illumination.

“Ten months on, the group is, in our view, behind its plan,” AHIB said in its report which retained the ‘hold’ call on the stock, with a 52-target price of RM2.48, two sen lower from its earlier target. The counter closed at RM2.53 yesterday.

“We are cautious on Axiata’s earnings outlook but believe the negatives are partly priced-in,” it said.

In the report, AHIB said Axiata has reported weak operational results and made limited progress in de-leveraging its balance sheet, adding that the group’s debt level remains elevated while its interest coverage ratio has deteriorated due to lower operating profit and high finance costs.

“While we like the management’s proactive efforts in exploring various opportunities to monetize its assets / de-leverage its balance sheet, the weak macroeconomic conditions, high interest rates and lackluster investor sentiment may affect the asset valuation and its de-leveraging progress,” it said. –TMR