Logo of Phnom Penh Post newspaper Phnom Penh Post - Smart sale possible as Axiata’s earnings ebb

Smart sale possible as Axiata’s earnings ebb

A man checks his mobile phone outside a Smart branch in Phnom Penh earlier this year.
A man checks his mobile phone outside a Smart branch in Phnom Penh earlier this year. Pha Lina

Smart sale possible as Axiata’s earnings ebb

Malaysian telecom giant Axiata Group will likely divest stakes in its more profitable operations, including its Cambodian subsidiary Smart, as the company is projected to have a 7 percent year-on-year decline in earnings for 2017, according to PublicInvest Research.

The research house for Malaysia’s Public Investment Bank Berhad (PIBB), noted in a report this week that Axiata’s performance has been dragged down by operations at home and by its subsidiaries in Singapore and India.

“We believe Axiata is likely to divest part of its stakes in more profitable overseas units in Sri Lanka, Cambodia and Indonesia in order to raise funding for future capex [capital expenditure] and to pare down borrowing, following the call-off of the planned disposal of M1,” it said, referring to a reverse of course in July that saw the company call off a potential sale of its stake in Singapore’s M1.

PublicInvest noted that Axiata’s operations in Indonesia had performed well, with its subsidiary XL reporting an 8.2 percent year-on-year increase in revenue during the second quarter, and net profit up 73.9 percent since the start of the year. However, despite the positive growth, the research house held its outlook for Axiata Group at “neutral”.

Marc Einstein, a senior telecoms analyst for ITR, a Japanese-based IT focused research and advisory firm, said that it was extremely plausible that Axiata could look to sell off its Cambodian mobile operator.

“It would make sense for Axiata to put Smart on the chopping block given that it is struggling in its traditional markets,” he said. “A lot of international telcos are looking to offload their overseas ventures and retrenching in their home markets.”

Einstein added that over-the-top content (OTT), which uses the internet to bypass the traditional distribution channel of mobile operators, has “decimated” the revenue stream from voice calls. Cambodia lacks sufficient technological infrastructure to replace the potential losses, he said.

“I would expect that Axiata would return inward to Malaysia and slow expansion until it can develop other sources of revenue such as creating games, digital media or financial technology,” he said. “They can do that in Malaysia, but not in Cambodia because there is still a technology gap.”

In October of last year, Chari Thandalam Veeravalli Thirumala, group chief financial officer of Axiata, said the company would consider selling up to 40 percent of its stake in Smart to a strategic investor.

In May, Axiata offloaded a 10 percent stake in Smart to the Japanese group Mitsui Co Ltd for $66 million. The strategic sale, which still gives Axiata an 82.5 percent stake in Smart, raised the value of the company to $724 million when considering cash received from dividends, Axiata said at the time.

“Portfolio management is a normal business consideration and exercise, and is good practice of a holding company and operating group such as Axiata,” an Axiata spokesperson told The Post yesterday in an email. “[However,] Axiata has no plans to exit any of its portfolio companies. We are a long-term investor and we operate our subsidiaries, some more than 20 years.”

The spokesperson added that if there ever was a stake sale, Axiata would always maintain a majority stake in its subsidiaries, as they form a strategic part of the company’s portfolio.

“In the event Axiata is to enter into any transactions deemed important and necessary for the long-term growth of its companies, the group will make the necessary announcements,” the spokesperson said.

MOST VIEWED

  • All inbound flights set to face added scrutiny

    Ministry of Health spokesperson Or Vandine said on Monday that the ministry is monitoring all inbound flights, after it was announced that only those from Malaysia and Indonesia will be temporarily cancelled from August 1. Vandine said on Monday that the two countries were identified as

  • Flights from Indonesia, Malaysia cancelled

    A Ministry of Health official has warned of the possibility of Covid-19 spreading through community transmission after the total infected cases in the Kingdom rose to 225. Ministry spokeswoman Or Vandine told reporters on Saturday that the possibility of community transmission cannot be overlooked and that

  • Man in quarantine dies of ‘overdose’

    The Ministry of Health on Thursday said a Cambodian migrant worker who died while being isolated at a quarantine centre in Tbong Khmum province’s Kroch Chhmar district may have died from syncope or overdose of tablets. In a statement, the ministry said the 21-year-old

  • Ministry set to reopen 20 schools in August

    The Ministry of Education, Youth and Sport will allow 20 high-safety-standards schools to reopen next month despite new cases of Covid-19 in the country. Ministry spokesperson Ros Soveacha wrote in a Telegram message on Wednesday that the schools are in Phnom Penh, Siem Reap and Battambang.