Axiata's share price hit an all-time high of RM6.23 yesterday on speculation that the group may be embarking on a capital management exercise. 

Financial flexibility. We gather from our source that Axiata may unveil a plan to optimize its gearing as part of a capital management roadmap. This could potentially include a bond issuance to ensure that the group's longer-term capital needs are taken care of. Despite market talk and the euphoria over dividend plays, we do not expect any dividend surprise in the near term. Axiata's net debt/EBITDA of 0.5x and net gearing of 0.2x provide scope for further capital management, with ROIC as a key KPI.

Waiting for the dust to settle in India. Axiata is keeping its options open with regard to its investment in India via 19.9%-owned Idea Cellular. The India telecoms sector saw its prospects dim after the government cancelled 122 2G mobile licences, compounding the regulatory risks in the market. Recent media reports have speculated on the potential sale of Maxis Communications' 74%-owned Aircel. At current price, Axiata's stake in Idea is worth some USD1bn (RM3.24bn), or 38 sen/share. This compares with the estimated carrying value in its books of about RM5bn after writing down the investment by RM1.1bn in 4QFY10.

Maintain NEUTRAL following share price rally. Axiata trades at 16.4x FY13 EPS and 6.2x FY13 EV/EBITDA, which we deem attractive but not compelling, juxtaposed against the risks that some of its overseas OpCos face. The key re-rating catalysts are: (i) the stronger than expected earnings, (ii) special dividend, and (iii) improved data traction in Indonesia. The foreign shareholding in the stock currently stands at about 27%.

Source: OSK