Axiata targets more gains from capital expenditure

Axiata aimed to reduce its capex intensity for digital telco operation companies under its umbrella to below 20%.

PETALING JAYA: Axiata Group Bhd is seeking to optimise the intensity of its capital expenditure (capex), with the aim of deriving higher returns from its assets.

Following a meeting with the telecommunications conglomerate, Kenanga Research said, instead of growing network capex rapidly in the coming years, Axiata planned to keep it flat.

In particular, Axiata aimed to achieve a data margin of US$0.10 per gigabyte (GB) by 2025.

The research house said Axiata is on track with its plans to evolve from a pure telco player to a telco-tech company.

“One of the main targets under this strategy includes capex and operating expenditure savings from a reduction in cost per gigabyte,” Kenanga Research said.

The research house added this is expected to address the current trend afflicting telcos globally, where earnings growth lags behind capex investments.

“In other words, this implies that telcos are not deriving sufficient returns on their capital,” it said.

Axiata aimed to reduce its capex intensity for digital telco operation companies under its umbrella to below 20%.

In contrast, based on current conditions, Axiata forecast that its mobile network capex would exceed 20% by 2026, according to the research house.

The group’s high capex of 25% is attributed to low average revenue per user (arpu) of US$2.03 derived from its subsidiaries in frontier markets.

“In comparison, as an illustration, T-Mobile’s capex is merely 18% given its significantly higher arpu of US$10.60,” the research house pointed out.

As such, Axiata aims to construct a competitive network that aligns with its customers’ preferences for a consistent and reliable experience, along with providing value-for-money telecommunications services, Kenanga Research said.

Furthermore, the group plans to prepare Link Net for a transformation into a fibre company, which involves the transfer of Link Net’s 750,000 residential subscribers and the rollout of an additional two million new home passes by Link Net to XL Axiata in Indonesia.

In line with Axiata’s delayering strategy, XL Axiata assumes the role of service company and provides fixed-mobile converged offerings, while Link Net transforms into a fibre company.

Link Net will concentrate on delivering eight million home broadband accouncts to XL Axiata by 2026, with a target of 3.4 million for 2023.

Kenanga Research also said the other layers within Link Net, including enterprise solutions and media or content product offerings, will remain unchanged for the time being.

It noted that the cost of growth is evident, particularly in Indonesia, where low fixed broadband penetration at 15%, compared with Malaysia’s 48%, as it is linked to a significant supply deficit.

It has reiterated an “outperform” rating on the stock and maintained its target price of RM3.10.

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