CGS said it continues to expect Axiata to realise its RNAV within a three-year period following recent interactions with the management of the group. The carving out of XL's fibre assets and Link Net's broadband subs is on track to be completed by 3Q24, management said. The sale of edotco Myanmar is progressing with no change in the target completion of Apr 2025 (within 12 months of announcement date of 4 Apr 2024).
The house said it awaits further information on the potential merger of XL Axiata and Smartfren in Indonesia, recapitalisation exercise of Link Net recapitalisation of edotco.
CGS adds the recapitalisation exercise of edotco in particular will be affected by US bond yields, with lower yields likely to lift its valuations. According to the management, capex spend at edotco has thus far been slower than expected, which suggests to us that the need for capital and thus the edotco recapitalisation need is also pushed out.RM strength a boon to balance sheet; lower rates to help
The 7.7% appreciation of the RM relative to the US$ in the past one month is a positive for Axiata's balance sheet, which sat on US$3.1bn in US$-denominated debt as at 31 Mar 2024. The house estimates every 5% appreciation of the RM vs. the US$ (end-2023 reference rate of RM4.59/US$) would lead to c.RM0.7bn in forex gains from the translation of Axiata's US$-denominated debts, all else being equal. However, the appreciation of the RM vs. regional currencies is negative for its core net profits. In our estimates, the biggest negatives come from the Rp, BDT and LKR with a 10% appreciation of RM vs. these currencies leading to a 4.1%, 4.7% and 3.1% negative impact, respectively, to Axiata FY25F core net profits, all else being equal. We keep our core net profit estimates, pending further clarity on forex rates.
Share price underperformance creates opportunity
CGS reiterates its Add call on Axiata in view of its steps towards monetising its multiple businesses (our RNAV: RM5.04), which is sees as a key re-rating catalyst. Our RNAVderived TP remains at RM3.67. We see the stock's 8.5% relative underperformance vs. the KLCI in the past one month as providing an attractive entry point. Lower US bond yields and stronger regional currencies supporting regional economies where it operates are added catalysts.
Downside risks include its inability to make progress on monetising its assets, and negative earnings shocks in its key markets.
