The share price weakness post-merger cancellation could be a buying opportunity backed by fundamental footing as regional operations grow more efficient. BUY with TP of RM4.80. Overall, we believe the sell-down could have been overdone as there is still value to be had from the traction seen in the stock’s underlying operations. Additionally, fresh talks of merger potentials could reignite sentiment on the stock.

On the cancellation of merger talks with Telenor, AXIATA’s share price plummeted to a closing low of RM4.11 (-16% on 10th Sept 2019 from the prior trading day). However, management remains keen in seeking for earnings accretive and yield generating merger opportunities, albeit very likely to be at much smaller scale. Recent whispers of CK Hutchinson eyeing XL Axiata as well as the potential TM and Celcom joining hands. Materialisation of such talks could translate positively to sentiment.

Celcom faces steep competition in the local scene as consumers weigh in postpaid options from prepaid offerings. Nonetheless, management remains firm in managing operating costs better, mainly direct costs (i.e. network and maintenance costs). XL’s expansion into the ex-Java market could drive the group’s Indonesian presence while benefiting from improved interconnection and other expenses (possibly better roaming costs).

On other regions, Robi (Bangladesh) face pressures from new tax rulings but are in tow to stay profitable (prior to taxes) as growing market share is supplemented by easing opex. Dialog (Sri Lanka) may be hampered in FY19 owing to the terrorist attack but might recover in FY20 if consumer spending regains footing. Smart (Cambodia) thrives as a market leader. At the meantime, NCell’s (Nepal) ongoing capital gain tax dispute with authorities may still be distant from a resolution.

edotco’s outlook is helmed by its growing tower base, with Philippines being the next addition to its 2Q19 footprint of 19.7k towers. We believe other possible entries could be the untapped Thailand and Vietnam markets. Management continues to champion operational excellence to promote profitability and growing its cash pile.

Source: Rakuten Research - 1 Oct 2019