What’s New

• Axiata announced that Mitsui & Co Ltd has invested US$50m for a 10% stake in its digital services arm Axiata Digital Services Sdn Bhd (ADS). The investment would give ADS a pre money enterprise value of US$500m.

• The proceeds will be used for business growth, capital expenditure and working capital for ADS which consists of:

- Boost: e-wallet with 4 million users and 80,000 merchants

- ada: largest digital advertising agency in Southeast Asia

- Apigate: leading global API marketplace

• The management expects ada to breakeven by 2019, Apigate by 2020 and Boost by 2021.

• Axiata also announced that its non-core digital businesses under Digital Venture have been transferred to Pegasus 7 Ventures Pte Ltd, an international investment fund managed by Gordian Capital, with a valuation of US$140m.

• We are positive on the latest development as it could narrow the losses made by the digital arm. Digital investments posted a net loss of RM154m in 2018.

Earnings Outlook/Revision

• Forecast maintained – We are keeping our net profit forecasts for FY19 and FY20. Major concern is the RM1.45b capital gains tax dispute in Nepal where Axiata is challenging the tax authority in court. Failure to challenge the ruling could turn FY19 estimated net profit of RM1.3b into a net loss of RM150m.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM4.95 based on Sum-Of-Parts (SOP).

Source: JF Apex Securities Research - 6 May 2019