Investment Highlights

• We maintain our BUY call on Axiata Group (Axiata) with unchanged forecasts and sum-of-parts-based fair value of RM5.32/share, which translates to an unchanged FY19F EV/EBITDA of 6x, 1SD below its 3-year average of 7x.

• We are neutral on Axiata’s decision to cancel its dividend reinvestment scheme (DRS) on the electable portion of its interim dividend of 5 sen, which goes ex tomorrow, due to the sharp drop in its share price.

• On Sept 27, Axiata had set the issue price for its shares under its DRS at RM4.26/share, which represented an 8.8% discount to the theoretical ex-dividend price of RM4.62/share, based on the five-day volume weighted average market price up to last trading day of 26 Sep, prior to the price-fixing date.

• However, Axiata’s share price has since dropped by 25% to RM3.48/share currently, which is 18% below the share exchange value for the dividends.

• Hence, we view Axiata’s board decision as logical given that its existing shareholders would not be opting for the DRS under the current conditions.

• Even though Axiata’s share price has been on a downward trajectory over the past months, we remain optimistic on its longer term fundamentals given improving revenue growth prospects for Celcom, XL, NCELL, Dialog and SMART.

• Furthermore, Axiata currently trades at a bargain FY18F EV/EBITDA of 6x, below its 3-year average of 7x and half of Digi’s 12x.

Source: AmInvest Research - 7 Nov 2018