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AmInvestment Research retains Buy on Axiata Group

by December 14, 2016 General

KUALA LUMPUR: AmInvestment Research is retaining its Buy call on Axiata group with an unchanged forecasts and sum-of-parts (SOP) based fair value of RM6.15 a share.

It said on Wednesday this implied a FY16F enterprise value/ earnings before interest tax, depreciation and amortisation (EV/Ebitda) of seven times, which is half of Singapore Telecommunications Ltd’s present 14 times. 

It issued the research report after Axiata proposed to place out and divest primary and secondary shares in its telecommunications infrastructure unit edotco Group, worth US$600mil (RM2.7bil) to Innovation Network Corp of Japan (INCJ) and Khazanah Nasional to reduce gearing and enhance corporate value.

“At this juncture, we have not assumed any valuation for edotco in our SOP, given the scant details on the group’s earnings and asset base. 

“But assuming that Axiata retains a 51% equity stake in edotco, this would value the company at US$1.2bil (RM5.4bil) and potentially enhance Axiata’s SOP by an incremental 62 sen a share or 10%. 

“We are positive on Axiata’s plans to unlock edotco’s value and further degear the group’s already decent net debt/Ebitda of 1 time versus Maxis’s 1.9 times, which will position the group for any additional capex requirement to rollout 4G connectivity and spectrum acquisitions in its multiple geographical operations,” it said.

AmInvestment Research pointed out that edotco Group currently manages 16,800 towers in Malaysia, Bangladesh, Cambodia, Sri Lanka and Myanmar, end-to-end solutions in the tower services sector from tower leasing, co-locations, build-to-suit, energy, transmission and operations and maintenance.

 Axiata currently trades at a bargain FY17F EV/Ebitda of six times, below its two-year average of 8.6 times. As a comparison, both Maxis and Digi are trading at 13 times. Additionally, dividend yields are attractive at 4%. 

Notwithstanding the intense domestic cellular competition, we continue to like Axiata due to the expected earnings accretion from its Nepal-based NCELL and strategic domestic roaming arrangement with Telekom, which will provide customers with a more comprehensive range of services.