Axiata Group Bhd’s recent share price weakness following the cancellation of its proposed merger with Telenor SA could present a buying opportunity as its regional operations grow more efficient, says Kenanga research.
Axiata’s share price plummeted to a closing low of 4.11 ringgit ($0.98) on September 10.
Kenanga said Axiata’s management remains firm in managing operating costs better, especially direct costs as demonstrated in figures from the first half of this year, which it believes could carry on to future results.
It added that XL’s expansion into the ex-Java market could drive the group’s Indonesian presence while benefiting from improved interconnection and other expenses. In the first half of this year, service revenue grew 15 per cent and earnings before interest, tax, depreciation and amortisation rose 19 per cent.
“We gathered that other players were unable to enter the ex-Java scene due to poorer financial capabilities, which says plenty about XL’s staying power in the fight for market share,” it said.
Meanwhile, the Robi operations in Bangladesh face pressure from new tax rulings but will stay profitable due to growing market share, while Dialog in Sri Lanka may be hampered in fiscal year 2019 due to the terrorist attack but may recover in fiscal year 2020 if consumer spending regains its footing.
Smart in Cambodia is thriving as a market leader while Nepal’s Ncell may still be far away from a resolution to its ongoing capital gains tax dispute with authorities.
As for edotco, Kenanga believes that after the Philippines, other possible market entries could be Thailand and Vietnam. The digital operations are likely making losses but seeking synergistic partnerships to expand their presence, it said.
With regards to a potential future merger, the research house said Axiata’s management remains keen in seeking earnings accretive and yield generating merger opportunities although likely at a much smaller scale.
There has been recent talk of CK Hutchinson eyeing XL Axiata as well as debate over the sensibility for TM and Celecom to join hands, which Kenanga says could translate positively to sentiment.
THE STAR (MALAYSIA)