KUALA LUMPUR: Maybank Investment Bank Research is maintaining its Hold call on Axiata with an unchanged target price of RM3.90 as its near-term earnings recovery thesis having largely played out.
The research house said on Friday Axiata intends to transition into a “high dividend” company.
A number of drivers have been identified to generate the necessary earnings accretion/funding for a targeted 20 sen dividend per share in 2024.
“The plans, while likely to please to investors, are dependent on successful execution, ” it said.
Maybank Research said that within the next five years in 2024, Axiata wants to lower its group-wide unit data cost to less than 10 US cent/GB (currently 36 US cent/GB in FY20), raising EBIT margin to more than 20% (14.4% in 9M20) and paying a DPS of more than 20 sen (9.5sen in FY19) funded from operations.
Assuming a 100% payout, the 20 sen DPS equates to a FY24 net profit of RM1.83bil, 15% above the research house’s forecast.
It also said Axiata is exploring ways for value creation from 2020 to 2024 which include 1) mid-single digit revenue CAGR or more than RM6bil growth, 2) less than RM3b opex growth reduction and 3) less than RM5.5bil annual mobile capex or 20% intensity (includes 5G capex for network capacity enhancement).
“Management will evaluate monetization opportunities in both the digital business and edotco, with possible IPOs in three to five years. Meanwhile, dividend policies of each mobile op-co would be standardised to a minimum 50% payout ratio.
“The high-dividend (through operational enhancement) rhetoric while pleasing, still hinges upon successful execution. Axiata’s track record with earnings delivery has unfortunately been patchy, with management having grappled with various operational challenges.
“Our earnings forecasts and RM3.90 TP (based on a sum-of-parts with each op-co valued by DCF) are unchanged for now, ” it said.
Maybank Research’s sector preference is Telekom (current price: RM5.37, TP: RM5.50).
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