PETALING JAYA: Axiata Group Bhd
’s cashflows are sufficient to deliver on its 10 sen a year dividend per share (DPS) guidance, aided by ongoing debt repayment.
The commitment for the 10 sen a year DPS provides support for a 3.9% dividend yield for this year, said CGS International Research (CGSI Research).
Besides that, the ultimate value-unlocking for the group will come from the distribution of its three key assets, CelcomDigi Bhd, PT XLSmart Telecom Sejahtera Tbk and Edotco Group Sdn Bhd back to shareholders.
This will remove the “holding company discount” associated with Axiata’s conglomerate structure.
The unlocking of its key assets, including Edotco, which is unlisted, and PT Link Net Tbk this year was part of Axiata’s wider strategy.
CGSI Research said, in the worst case, both exercises can be completed by early next year.
The research house foresees the delivery of these value illumination goals as a key re-rating catalyst for Axiata’s shares, which currently trade at a 39% discount the revalued net asset value (RNAV) estimate of RM4.20 a share.
The research house reiterated its “add” call on Axiata with an unchanged RNAV-derived target price of RM3.40 a share.
The research house said key downside risks for the telecommunications company include the failure to monetise assets, resulting in the discount to RNAV staying elevated, and a sharp deterioration in operating profits at key subsidiaries due to stiffer price competition or macroeconomic shocks.
CGSI Research added that Axiata’s dividends from key associates and subsidiaries, coupled with reduced interest expenses from lower net debt levels at the holding company, are supportive of Axiata’s dividend plans.
Last year, Axiata received RM1.4bil in dividends from its associate and subsidiary companies to service holding company interest and operating costs.
Even with reduced dividends expected from XLSmart as it goes through with a merger exercise, the repayment of holding company debt from proceeds of the XLSmart transaction as well as ongoing asset monetisation efforts will more than support the dividend commitment that is expected to total RM900mil.
The improving profitability of key regional subsidiaries will also support the dividend commitment, the research house said.
