KUALA LUMPUR: Kenanga Research has reiterated its positive outlook on Axiata Group Bhd after its 83 per cent-owned Sri Lankan subsidiary Dialog Axiata PLC announced its acquisition of Airtel Lanka through a share swap.
However, the firm maintains a neutral stance on Axiata due to the relatively small impact of the acquisition.
The announcement aligns with expectations as Axiata had previously entered into a binding agreement for the merger in May 2023.
Kenanga Research remains neutral because detailed information is lacking, and Dialog represents only 4.0 per cent of its valuation.
Following the share swap, Kenanga Research estimates Axiata's ownership in Dialog will drop from 83 per cent to 74 per cent.
The estimated acquisition cost of 9.8 billion Sti Lankan rupees (about RM156 million) translates to a price-to-sales multiple of 0.75x for the fiscal year 2023, which Kenanga Research considers reasonable.
The impact on Axiata's earnings and valuation is deemed insignificant, with Kenanga Research maintaining its forecasts, target price of RM3.05 and positive outlook.
According to Kenanga Research's estimates, Airtel Lanka reported a core loss before interest, taxes, depreciation, and amortisation (LBITDA) of 2.1 billion ripees (RM32 million) in fiscal year 2023, compared to an LBITDA of RM273 million in fiscal year 2022.
In fiscal year 2023, the estimated core loss of 12.3 billion rupees (RM196 million) is primarily attributed to depreciation (45 per cent) and finance costs (37 per cent), with the latter resulting from significant debt totaling around 68.1 billion rupees (RM1.05 billion), primarily long-term debt (97 per cent) maturing in March 2027.
Airtel Lanka's cash holdings as of the end of fiscal year 2023 amounted to 1.06 billion rupees (RM17 million).
Consequently, it is estimated that Axiata's net debt to earnings before interest, taxes, depreciation and amortization ratio for fiscal year 2024 will slightly increase to 2.36 times from 2.23 times.