KUALA LUMPUR: RHB research has cut its earnings forecast and its target price for Axiata Group Bhd after incorporating its latest estimates on CelcomDigi Bhd, and lower earnings before interest tax depreciation and amortisation (ebitda) estimates for edotCo and Ncell Axiata Ltd.
It lowered its FY23-25 core earnings by 4-14 per cent, while its target price has been cut to RM3.18 from RM3.35.
"The planned divestment of Ncell, which is slightly ebit dilutive, and the monetisation of edotco (an ongoing process) were key highlights, given the weak earnings construct."
"The stock remains a deep sector laggard (year-to-date: -26 per cent), being the worst-performing of the ASEAN-4 telcos."
A share price re-rating should accompany better clarity on its asset delayering and balance sheet deleveraging initiatives," it said in its note followins its 3Q2023 results announcement yesterday.
RHB research said Axiata's third quarter ended Sep 30, 2023 and nine-month ended Sep 30, 2023 earnings fell short at 47 per cent of its forecasts and 52 per cent of consensus forecast.
The deviation was due to a weaker edotco and Ncell, and higher financing costs.
A final RM811 million asset impairment (non-cash) was booked for Ncell ahead of a planned divestment, adding to the earlier impairment and write-down of capital gains tax receivables totalling RM710.3m in 2Q23.
"Overall, Axiata's earnings construct looks to be secondary with expectations on its asset monetisation plans," it said in a note today.
Ncell has been classified as an asset for sale (discontinuing operations) with a suitable buyer to be identified in due course.
RHB research said talks of a divestment have reverberated for some time, given unrelenting regulatory uncertainties, spectrum constraints, and an acute erosion in voice revenue from lower mobile interconnect rates.
"Management's focus will be on a clean exit, which suggests it is prepared to 'settle for less', noting that the carrying value has been written down to RM375 million," it said.
On edotCo, Axiata said due diligence is ongoing for a divestment to strategic investors as the towerco seeks to de-lever its balance sheet.
Options explored include a secondary share issuance which may see existing shareholders diluted.
It said management is expected to shed more light on its portfolio strategy at the Investor Day on Dec 6, 2023.
