Axiata Group Bhd -Eyeing deals in Asia

News     Press reported that Axiata Group Bhd (“Axiata”) is eyeing deals in Bangladesh, Indonesia and Sri Lanka but reckons getting into Myanmar will be ‘very tough’, CEO Jamaludin Ibrahim said in an interview.

Axiata said there was increasing competition between cellphoine firms in Indonesia, where robust growth is propelling millions of people into a bulging new middle class. Axiata doubled its spending on Indonesia last year and would invest another ‘big sum’ this year, according to Jamaludin. 

The group has no plans to  copy SingTel, which has embarked on a drive to acquire high-tech firms to transform itself into a multimedia and information technology leader. Singtel bough Israeli mobile advertising solutions firm - Amobee Inc - last year for USD321m. 

Consumers in the seven  major South-East Asian countries spent nearly USD14b on mobile phones in the year to September, according to market research firm GfK Asia. 

Comments    The news is not a surprise to us as Axiata has continued to reiterate its forward strategy (to the investors community) to focus on in-country consolidation within its subsidiary companies. 

As of 3QFY12, the group has a cash pile of RM8.6b with a gross debt/EBITDA ratio of 1.8x. The ratio is still below its optimal capital structure of 2.0-2.2x gross debt/EBITDA level, thus suggesting that Axiata still has room to leverage up its balance sheet if needed. 

We estimate that Axiata can raise up to RM3.1b if the company decides to maximise its optimal capital structure.

Outlook     The group’s outlook has improved somehow recently, albeit the competition in both its local and overseas ventures continuing to remain strong. Nevertheless, the prolonged regulation issues in both India and Bangladesh may continue  to put barriers in its operations going forward.  Furthermore, the expected continuing strengthening of  Ringgit Malaysia, following the release of QE3, may result in the group bearing some currency translation losses going forward.

    

Forecast    No changes in our FY12-FY14 earnings forecasts. 

Rating   Maintain MARKET PERFORM

Valuation     Maintaining target price at RM6.81 based on an unchanged targeted FY13 EV/forward EBITDA of 8.3x (+2SD). 

Risks     Regulation risks in its overseas ventures.

Source: Kenanga