• We re-initiate coverage on Axiata Group Berhad (Axiata) with a  BUY recommendation premised on (i) admirable regional  exposure and one of the growing telco players in Asia, (ii)  positive recovery in prepaid and postpaid business and (iii)  entrenched position in telco tower industry. Another potential  catalyst for Axiata is the positive outcome of Celcom-Digi  merger.

• 5G network is expected to accelerate the recovery momentum

• We also admire Axiata persistence in rewarding its shareholders  given its >70% of dividend payout trend in the last few years.

• We value Axiata at RM4.07, derived based on sum-of-parts (SOP)  valuation.

One of major telco services provider in the regional market

Axiata was birthed out of the demerger exercise in 2008 and the  company has registered an outstanding growth since. This is  supported by contributions from Malaysia’s Celcom, XL (Indonesia),  Dialog (Sri Lanka), Robi (Bangladesh), Smart (Cambodia), Ncell  (Nepal), Edotco and digital business. The group is servicing around  290mn subscribers, almost half of ASEAN population.

Strategic M&A

For Celcom-Digi merger, we opine that the synergistic benefits arising  from the combination of expertise from both Telenor and Axiata will  be more than compensate for the earnings dilution. The merger deal  will also build a world-class Innovation Centre that will focus on  development of 5G. In regards with the proposed acquisition of tower  assets from PLDT, we are positive on this deal as this transaction  comes together with long-term sale and leaseback MSA terms. It is  worthwhile to note that the Philippine government is planning to  increase the number of telco towers across the nation, a great  potential for Axiata, in our view.

Anticipate Axiata to maintain more than 70% dividend payout ratio.

Historically, we learnt that the company has been paying more than  its dividend policy of distributing 30% of net profits and this is  expected to continue in the foreseeable future. Assuming a 75-80%  dividend payout ratio, we expect Axiata to declare  11sen/12sen/12sen dividend per share for 2022E/2023F/2023F  respectively, translating into an attractive 3.6%/3.9%/4.1% yield at  current price level.

Re-initiate with a ‘BUY’ call and TP of RM4.07

We re-initiate coverage on Axiata with a BUY call at TP of RM4.07.  Our valuation is derived based on sum-of-part (SOP) valuation with  each of the operating company valued using EV/EBITDA metrics. Note  that the share price has recently rallied by almost 10% month-to-date  (MTD) on the back of positive sentiment on telco stocks following the  formation of a new government.

Source: BIMB Securities Research - 28 Nov 2022