Analysts have differing opinions on the future outlook for Axiata Group Bhd with RHB Investment Bank Bhd (RHB Research) maintaining a BUY rating for the company and MIDF Amanah Investment Bank Bhd (MIDF Research) upholding a NEUTRAL stance on Axiata.

RHB Research noted that Axiata's recent merger between its Indonesian subsidiary XL Axiata and Smartfren marks a significant milestone in its strategy to optimise its portfolio. The merger is expected to enhance Axiata's balance sheet through proceeds from the partial monetisation of XL, which will be directed towards debt reduction.

The merger will result in XL issuing approximately 5.1 billion new shares to Sinarmas Group, diluting Axiata's stake in XL to 47.9% post-merger. This strategic move is anticipated to create a more competitive landscape in Indonesia's telecommunications sector, with Axiata and Sinarmas each holding a 34.8% stake in the newly formed entity, XLSmart Telecom. RHB Research highlighted that the merger is projected to yield annual synergies of US$300-US$400 million, primarily through operational efficiencies and network integration.

Meanwhile, MIDF Research acknowledged the merger's potential to solidify Axiata's position as the third-largest telecommunications provider in Indonesia but expressed concerns regarding the competitive landscape that may limit future revenue growth. The research house noted that while the merger will provide a cash injection of US$475 million for debt reduction, Smartfren's ongoing financial losses could pose challenges for the merged entity.

Both research houses agreed on the significance of this merger in enhancing Axiata's market share and spectrum holdings, which will increase from 90 megahertz (MHz) to 152MHz, allowing for improved service delivery and customer experience. The combined subscriber base of XLSmart is expected to reach approximately 94.5 million, positioning it favourably against competitors like Telkomsel and Indosat Ooredoo Hutchison.

Despite the positive outlook on market positioning and potential synergies, analysts remain cautious about the financial health of Smartfren, which has reported widening losses in recent quarters. RHB Research's analysis suggests that Axiata's earnings could see an improvement post-merger, with projected net profit after tax increasing to RM1.22 billion from RM1.17 billion, despite the dilution of XL's earnings.

As Axiata navigates this significant transition, both houses are monitoring developments closely, particularly regarding the execution of synergies and operational strategies within XLSmart. The completion of this merger is anticipated by the first half of the calendar year 2025, marking a pivotal moment for Axiata as it aims to strengthen its foothold in the competitive Indonesian telecommunications market while enhancing its overall financial stability.

Both research houses have maintained their respective share target price (TP) for Axiata with RHB Research maintaining the TP at RM3.40, offering a 44% upside, while MIDF Research maintained the TP at RM2.44.