Axiata Group Berhad: Comprehensive Financial Analysis and Outlook

Broker: UOB Kay Hian

Date of Report: January 17, 2025

Introduction

Axiata Group Berhad, a leading mobile operator in the Southeast Asian region, has been the focus of UOB Kay Hian’s latest financial analysis. The report provides a deep dive into the company’s strategies, financial health, risks, and growth potential, along with an investment recommendation. Here is an exhaustive breakdown of the key insights from the report.

Key Investment Highlights

• Current Share Price: RM2.25
• Target Price: RM2.90
• Upside Potential: +28.9%
• Recommendation: BUY
• Dividend Yield: 4%

Near-Term Focus on Sustainable Cashflow and Balance Sheet

Axiata has outlined three pivotal focus areas during its recent investor day:

1. Progressively higher dividends with a 4% dividend yield currently.
2. High single-digit returns to shareholders.
3. Reduction of net debt/EBITDA to 2.5x by 2026.

The company is on track to achieve these objectives through market repair in its operating companies (opcos), interest savings from debt repayments, and infrastructure monetization. The projected three-year earnings compound annual growth rate (CAGR) stands at 13%, driven by cost discipline, market repair, and synergistic savings.

Financial Performance and Outlook

The company’s financial performance reveals a steady improvement in its balance sheet. As of 3Q24, Axiata’s net debt/EBITDA improved to 2.59x from 3.36x in 2023, largely due to opportunistic debt repurchasing and proactive debt repayment. The holding company’s debt was reduced by RM2.6 billion in 2024, bringing it down to RM8.4 billion.

Interest savings remain a significant driver of profitability. Axiata’s floating-rate debt profile of 44% means that a 1% change in interest rates can lift its 2025 net profit by 12%.

Key Financial Metrics (2023-2026F)

Strategic Initiatives

Monetization Opportunities

Axiata plans to leverage a lower interest rate environment to revisit monetization opportunities, especially for its infrastructure arm, edotco. Having exited the Myanmar tower business due to political instability, the company is now well-positioned to focus on more stable markets. Axiata holds a 63% stake in edotco, with other shareholders including INCJ (21.14%), Khazanah Nasional Bhd (10.57%), and Kumpulan Wang Persaraan (5.29%).

Mitigating Forex Risks

To counter forex volatility, Axiata aims to refinance its USD-denominated debts in frontier markets using internal funds and local borrowings. USD debt was reduced to US\$2.8 billion by 3Q24, down from US\$3.18 billion in FY23, constituting 52% of the company’s total debt.

Key Risks

Despite its strategic advantages, Axiata faces several challenges:

• Significant capital expenditure (capex) required for expanding Link Net’s home pass network.
• Upfront costs associated with the XL-Smarfren merger.

Environmental, Social, and Governance (ESG) Updates

Environmental

• Commitment to achieving net-zero emissions by 2050.
• 43% operational carbon emissions reduction from the 2022 baseline.
• Implementation of hybrid solar technology at 30 sites.

Social

• Launch of Organisation 5.0 to promote a future-ready workforce.
• Goal of 30% women’s representation in senior management by 2025.

Governance

• 90% training completion for key governance programs, including Anti-Bribery & Anti-Corruption, Whistleblowing, and Data Privacy.

Valuation and Recommendation

Axiata is recommended as a BUY with an unchanged sum-of-the-parts (SOTP) target price of RM2.90. The stock trades at a 12-month forward EV/EBITDA of 3.9x, close to its five-year mean of 3.8x. Re-rating catalysts include stronger operating company (OpCo) performance, a lower interest rate environment, and the potential listing of edotco.

Conclusion

With a focus on sustainable cashflows, balance sheet improvements, and dividend growth, Axiata is well-positioned for long-term profitability. While challenges remain, the company’s strategic initiatives and operational discipline provide a strong foundation for future growth. Investors seeking a promising opportunity in the telecommunications sector may find Axiata an attractive proposition.