PETALING JAYA: Analysts are generally bullish about the outlook for telecommunications (telecoms) conglomerate Axiata Group Bhd
following the completion of its high profile Celcom-Digi merger earlier this month, saying they like the prospects of the group’s digital and infrastructure businesses, as well as long-term synergies.
Axiata held its annual analyst and investor day with a Kenanga Research analyst saying he has been “reassured” by the group’s plans moving forward.
In a note yesterday, the analyst said Axiata has also increased its stake in Indonesia’s PT Link Net TBK (Link Net) to 79.5% via its subsidiary PT XL Axiata TBK, and that XL Axiata is targeting to become the leading convergence operator in Indonesia, strengthening its synergy with Link Net by cross selling to 800,000 home subscribers.
“At present, Internet service is still under-penetrated in Indonesia.
“With data being a basic need in Indonesia currently, XL Axiata is confident of a five-year compounded annual growth rate or CAGR data growth of 6% riding on Indonesia’s expected data growth of 17%,” the research house said.Kenanga Research also reported that Axiata saw earnings sustainability with its telco operators including Celcom-Digi and XL Axiata, as well as Robi Axiata Ltd, Dialog Axiata Ltd and Ncell Axiata Nepal, which are based in Bangladesh, Sri Lanka and Nepal respectively.
The research house said: “Axiata’s mobile operations are expected to generate positive free cash flow – with capital expenditure tapering – and be self-sustaining with regards to funding.”
Meanwhile, the group’s telco infrastructure arm edotco Group Sdn Bhd, currently the sixth largest telco infrastructure services company globally, will capitalise on 5G deployment in Malaysia, said Kenanga Research.
At the same time, the company will be accelerating its growth in both Indonesia and the Philipines which are categorised as growth markets.
“Together with Malaysia and Bangladesh, which are core markets, these markets will contribute 85% in revenue and 87% in earnings before tax, depreciation and amortisation in the long term. 80% of telco towers owned by edotco will be coming from both these markets.
“In reassuring sustainability, leasing contracts for its towers are on average eight years,” the analyst said.
Kenanga Research maintained an “overweight” call on the stock with a target price of RM3.96.
TA Research said Axiata’s priority for the near-term would be to strengthen the group’s foundation, on the back of strategies including delivering on mergers and acquisition track to future proof Axiata, deleveraging its balance sheet with a target to lower gross debt, and convergence in Indonesia.
Echoing the positive sentiment on edotco, the research house said: “In the nine months ended Sept 30, edotco’s revenue growth of 25% year-on-year was the highest among Axiata’s operational companies, driven by acquisitions in Malaysia, the Philippines, and Indonesia, as well as organic growth in Bangladesh, Malaysia, and Cambodia.
The research house reiterated its “buy” call on Axiata, with a higher target price of RM4.20.
