Not exciting for Axiata

Axiata Group Bhd was once riding high as Malaysia’s largest telecommunications (telco) player by market capitalisation. At a worth of RM60bil, it was Asia’s third-largest telco by value.

Things have really changed. It has now shrunk in size with its value at around just RM17bil, based on share price of RM1.85 on March 13.

The regional telco operator, which is still the country’s largest telco by revenue, was trading at an all-time high of RM5.41 in January 2015 based on Bloomberg data but at current price, it has fallen to near global financial crisis levels.

Axiata was born of a de-merger exercise from Telekom Malaysia Bhd (TM), where TM shareholders were given Axiata shares as part of the restructuring.

Timing was perhaps not good for Axiata, which was listed on April 28, 2008 at an initial public offering price of RM3.45. This was because the global financial crisis, which began in 2007, peaked in 2008.

That was almost 17 years ago and Axiata appears to be even worse off now, having lost almost half its value since listing.

What has been dragging the telco giant down?

Axiata declined to comment on questions sent by Starbiz 7 but market observers feel the company has not done a great job in growing revenue, venturing into regional markets, which has proven to be a drag on its books.

Estimates from analysts suggest that the company’s revenue should grow by 3.3% per year over the next three years.

It is understandable that many shareholders weren’t keen on holding on to the stock when the company is potentially experiencing a less prosperous future.

Furthermore, investors think that Axiata’s modest revenue performance may begin to slide although those who are bullish on the telco operator will be hoping otherwise.

For Tradeview Research director of investment advice Nurazlin A Samad, it was the spinning off of its Malaysian mobile business to merge with Digi and problems in South Asia markets that weighed on Axiata’s performance.

“We think the sentiment was weakened due to a few reasons, for example, spinning off its Celcom business to merge with Digi and financial struggle in South Asia markets (especially the losses in Nepal market), and lacklustre 4Q24 results.

“Of course, recent market volatility doesn’t help,” she tells Starbiz 7.

In the fourth quarter ended Dec 31, 2024 (4Q24), Axiata continued to post losses, although it managed to trim its net loss to RM224.77mil from RM695.02mil in 4Q23, helped by lower impairment charges and foreign-exchange gains.

On a quarter-on-quarter basis, Axiata recorded a net loss from a net profit of RM976.67mil in 3Q24, dragged by the RM356.4mil one-off net loss disposal for its Nepal subsidiary, Ncell Axiata Bhd.

Apex Securities Research analyst Steven Chong says there are multiple factors behind the weakness in share price.

“These include subdued earnings outlook whereby it is facing earnings’ dilution from XL Axiata-Smartfren merger, exposure to frontier market risk in Bangladesh, Myanmar and Sri Lanka,” Chong says.

He adds that there is also a strong foreign selling pressure due to US President Donald Trump’s tariff policies.

Axiata has controlling stakes in market-leading mobile and fixed operators in the region including XL and Link Net in Indonesia, Dialog in Sri Lanka, Robi in Bangladesh, and Smart in Cambodia.

CelcomDigi Bhd is a key associate company of Axiata, which has a 33.1% in CelcomDigi following the merger exercise.

Reducing debts

To regain investors’ confidence, Chong reckons Axiata should continue to pare down its debts.

According to RHB Research, Axiata’s net debt/earnings before interest, tax, depreciation ad amortisation has improved to 2.74 times in financial year 2024 (FY24) from 3.3 times in the previous year following a RM1.2bil reduction in holding company debt.

“Axiata managed to pare down its alarming high gearing level. It is currently delayering PT Link Net as a primary asset to be monetised,” Chong says.

Last December, XL Axiata agreed to a merger with PT Smartfren’s parent PT Sinar Mas Group to form a new entity called PT XLSmart Telecom Sejahtera Tbk.

The deal is expected to be finalised by the first half of this year, with both Axiata and Sinar Mas holding 34.8% stake in the new entity.

Chong says it will be positive if the company can reap the synergies of the merger.

On the other hand, Tradeview’s Nurazlin believes it will be challenging for Axiata to regain investors confidence due to the less-than-positive telco market outlook in South Asia.

“Two things appear to be challenging for Axiata. The macro environment for telco is not optimistic. In addition, management track record on its own venture is not promising, like in eFishery,” she explains.

Axiata’s subsidiary, XL Axiata, has a partnership with eFishery, an Indonesian e-commerce platform for fisheries, which is facing a probe for misconduct and fraud.

“This is just indirect evidence that shows Axiata may have made some missteps in managing its other business ventures,” she adds.

Axiata group chief executive officer and managing director Vivek Sood previously said it was inviting new investors to grow its infrastructure (Edotco Group Sdn Bhd and PT Link Net) and digital businesses (Boost and Axiata Digital & Analytics Sdn Bhd).

He said a large portion of the RM4.4bil capital expenditure guidance for FY25 will go to Indonesia, some for Edotco, as well as the digital telco business in Bangladesh.

No urgent need to list Edotco

Investors are also looking forward to a potential listing of Edotco, which has been long-mooted but is not likely soon.

According to Chong, while listing Edotco would be beneficial in the short term and can reduce Axiata’s gearing, he does not see an urgent need for it.

“Axiata’s main priority is streamlining its portfolio by divesting non-profitable or high-risk assets. For instance, the company is currently exiting the Myanmar market due to its worsening operating environment.

“We believe this strategic move will help Edotco fetch a better valuation,” he says.

Last April, Axiata said it would exit Myanmar by selling its entire stake in Edotco Investments Singapore Pte Ltd, for US$150mil.

Kenanga Research says Axiata has reclassified Edotco Myanmar as a continuing operation, reversing its previous de-consolidation.

“This change was because the sale and purchase agreement for Axiata’s 87.5% stake is set to lapse in April 2025. Despite the delay, Axiata remains committed to pursuing the current sale process.

Any asset sale by Axiata will be viewed positively by investors as there could be potential special dividends to be paid.

Looking at the current situation, though, Axiata’s priority should be reducing debt rather than increasing dividends.