AXIATA Group Bhd current share price weakness which has underperformed the FBM KLCI by 27% year-to-date (YTD) is reflective of regional telcos’ rising capex and COVID-19 challenges against the backdrop of 5G deployment requirements.
Noting that even Singapore Telecommunications’ share price underperformed Axiata by 6% YTD, AmResearch said Axiata’s management is cautious on Malaysia’s recently tightened conditional movement control order (CMCO) impact on its wholly-owned Celcom’s subscriber rates and average revenue per user.
Following an indication by Axiata’s group chief financial officer Vivek Sood, the research house said the group’s 3Q FY2020 is expected to rebound to a net profit that is better than its 1Q FY2020 which recorded RM121 mil.
This follows Axiata’s 2Q FY2020 normalised earnings which plunged by 63% quarter-on-quarter and 79% year-on-year to RM45 mil.
“In our view, this remains within our FY2020F earnings of RM526 mil which is 18% below consensus’ RM638 mil,” wrote analyst Alex Goh in a company update.
According to the research house, Axiata’s management still expects to mostly achieve its RM5 bil cost savings programme by end-2020 after having fast-tracked it from an earlier 2017-2021 timeline.
“This is likely to provide support to the group’s 2H FY20 earnings,” reckoned Goh.
Elsewhere, AmResearch noted that the transition of current group president/CEO Tan Sri Jamaludin Ibrahim to Datuk Izzaddin Idris which is slated for completion by December this year is proceeding smoothly.
“Both are jointly planning and executing the group’s strategy to optimise operational efficiencies and deliver on profit and dividend targets with the group positioning to be a dividend yielding company over the next three to five years,” observed Goh.
Moving forward, Axiata also plans to realise the value of digital businesses with new strategic investors which could limit its own capital commitments to a minimal US$15-20 mil over the next three years most of which will be utilised for digital finance services.
All-in, AmResearch maintains its “buy” call on Axiata with an unchanged fair value of RM4.50.
At the close of trading today, Axiara was up 6 sen or 2.16% at RM2.84 with 6.39 million shares traded, thus giving the company a market capitalisation of RM26.04 bil. – Oct 27, 2020