Axiata to focus on cost synergies and revenue

OUBKH Research expects earnings to recover by 2025 from growth in other operating companies.

PETALING JAYA: The outlook for Axiata Group Bhd’s dividend payout remains muted for financial year 2023 (FY23) until FY25, according to UOB Kay Hian (UOBKH) Research.

It would be a year of integration for the group with capital expenditure (capex) guidance scaling to RM7.1bil and expectations of high-single-digit earnings before interest and tax growth from last year’s base level, said the research house.Axiata would focus on revenue and cost synergies between LinkNet and XL Axiata in Indonesia, fund-raising to grow edotco Group Sdn Bhd’s current asset portfolio, and building its enterprise solution business.

While the stock has value, the monetisation exercise of edotco, ADA and Boost would take a back seat in FY23.

The research house trimmed Axiata’s 2023 net profit by 8% to account for elevated capex intensity but maintained a “hold’’ call on the stock with a target price of RM3.20 a share.

It also trimmed the telecommunication company’s 2023 net profit by 7.5% to account for higher depreciation and lower interest income.

OUBKH Research projects Axiata’s full-year 2023 core net profit at RM1.163bil, which is 27% lower year-on-year (y-o-y), on Celcom-Digi’s integration cost, dilution from stake sale and elevated capex intensity in Indonesia.

It expects earnings to recover by 2025 from growth in other operating companies.

It said LinkNet’s FY22 performance was disappointing with expected higher subscriber base and average revenue per users.

LinkNet’s earnings before interest tax amortisation and depreciation (Ebitda) fell 16% y-o-y.

“Amid rising inflationary pressure and potentially higher customer acquisition costs, Axiata’s management will focus on operations expenditure and capex savings for LinkNet,” it said.

As of end-2022, 37% of XL Home subscribers are XL Satu subscribers, suggesting the start of fixed and mobile convergence for Axiata in Indonesia.

The research house expects the two companies to focus on driving revenue synergies by deepening cross-selling and convergence opportunities, reducing costs via network synergies, and reducing churn, which may suggest higher customer acquisition costs in the near term.Axiata and XL Axiata currently own LinkNet.

On edotco, UOBKH Research said the company’s focus is to grow the existing portfolio of tower assets and operating matrix, likely with a fund-raising exercise.

In particular, the Philippines’ tenancy ratio is currently only at one time and the aim is to grow that to 1.5 times over three to five years.

The edotco Ebitda margin remained solid at 66% in 2022 and generated a net profit of RM119mil for Axiata or 7% of normalised group core net profit.

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Axiata , dividends , earnings , revenue , costsynergies , capex


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