PETALING JAYA: Axiata Group Bhd
’s 2025 net profit will be diluted by 7% after the merger of its unit Dialog Axiata PLC with Bharti Airtel (Airtel Lanka), in Sri Lanka.
Dialog Axiata expects a 8% revenue rise from the acquisition and less than 5% earnings dilution in 2024 as there will be integration costs, estimated at US$35mil over two years for network and information technology (IT) integration, from the merger.
UOB Kay Hian (UOBKH) Research said Airtel Lanka had been operating at a loss before interest and depreciation given the lack of economies of scale (estimated 19% to 20% market share versus Dialog Axiata’s 42% market share).
By 2025, the enlarged Dialog Axiata group could potentially achieve positive earnings before interest, tax, depreciation and amortisation (Ebitda) contribution, the research house said.
RHB Research said Airtel Lanka’s Ebitda and profit after tax and minority interest to break-even within six to 12 months (currently loss-making) of consolidation, mainly from synergies of scale.
For financial year 2024 (FY24), Axiata Group Bhd’s 82.3%-owned Sri Lankan subsidiary Dialog Axiata expects the earnings dilution to not be material at less than 5% and to be neutral or earnings-accretive from FY25, RHB Research said.
AmInvestment Bank (AmInvestment) Research said Airtel Lanka would bring in 10% of net debt into the amalgamated entity, which translates to RM110mil.
According to its calculations, this will have negligible impact and FY25 net debt to Ebitda ratio will remain at 3.5 times.
The research house said Dialog Axiata would be able to a deliver better user experience premised on higher spectrum availability post merger and both Dialog and Airtel Lanka are well-positioned to embark on the transition to 5G.
However, AmInvestment Research is “cautious” on Axiata’s prospects.
The group may be affected by digital-banking losses and higher interest expense arising from additional debt financing for Link Net’s fibre rollouts, it said.
After Dialog Axiata’s merger with Airtel, Axiata’s stake in Dialog Axiata will be diluted from 82.3% to 73.8%, with Bharti Airtel holding 10.4% in Dialog.
Meanwhile, MIDF Research is keeping its earnings estimate unchanged at this juncture.
It also does not discount the possibility that Airtel Lanka might remain loss-making beyond the one-year time frame.
The research house said this was based on the possibility of reduced affordability of consumers, escalating operating costs and diminishing investment returns.
It maintained its “neutral’’ stand with a target price of RM2.42 a share post-announcement on the acquisition of Airtel Lanka.
