Investment Highlights

• We maintain our BUY call on Axiata Group (Axiata) with unchanged forecasts and sum-of-parts-based fair value of RM4.90/share, which implies an FY20F EV/EBITDA of 5.5x – 1 standard deviation below its 3-year average of 6.2x.

• Axiata and the group’s wholly-owned Celcom Axiata together with edotco Group and Axiata Digital have launched a RM150mil fund for micro small-medium enterprises (SMEs) as part of their novel coronavirus (Covid-19) assistance programme, supported by an initial RM20mil contribution from the Ministry of Finance.

• Axiata Digital will offer syariah-compliant micro-financing on its Aspirasi digital platform in the range of RM1,000 to RM10,000 on favourable terms such as suspended repayment requirements and concessional interest rates to reach an estimated 150K micro-SMEs within Boost, Aspirasi and the Celcom ecosystem, together with its e-commerce and other telcos/e-wallets.

• Additionally, the programme will also bundle micro-insurance coverage under Aspirasi to protect micro-SME proprietors and merchants with emergency income, accidental death and Covid-19 assistance.

• Currently, micro-SMEs account for the majority of SMEs in Malaysia and include the B40 segment which tends to have minimal savings and cash flow to sustain daily requirements.

• As the sums involved account for less than 1% of Axiata’s market capitalisation, this development, which will be partly funded by the government, will not have any substantive impact on the group’s earnings nor gearing. Furthermore, the micro-financing programme, which is not a donation, involves delayed repayments with profit-sharing terms.

• We view this mildly positive initiative as part of the group’s efforts to capitalise on the current situation to boost Axiata Digital’s micro-credit and e-wallet operations, which have yet to be profitable at this stage.

• This development follows the group’s expanded mobile data plans for Celcom as well as its regional operations in countries which have been impacted by the Covid-19 pandemic. Refer to our sector update on 20 March for the corporate social responsibility initiatives by cellular operators.

• For a regional telco operator with excellent opportunities to further monetise its assets and engage in merger and acquisition activities, Axiata currently trades at a bargain FY20F EV/EBITDA of 4x vs. its 3-year average of 6x, and Maxis’ 13x.

Source: AmInvest Research - 27 Mar 2020