Company Spotlight: News Fueling Financial Insights

Axiata’s Strategic Turnaround Poised for Market Re-rating

Axiata Group Berhad is undergoing a significant financial transformation, driven by strategic asset monetization and balance sheet repair. HLIB Research maintains a "BUY" rating with a RM2.50 target price, citing Edotco’s potential sale as a near-term catalyst. The divestment of Myanmar tower assets clears hurdles for Edotco’s monetization, with a Khazanah-EPF consortium eyeing Axiata’s 63% stake at a reported USD3.5 billion valuation. Proceeds could reduce holding company debt to near zero, lowering the net debt-to-EBITDA ratio from 3.0x to 1.0x. The XLSmart merger adds USD400 million in immediate cash inflows, further strengthening liquidity. While forex volatility and disposal gains may create short-term noise, Axiata’s long-term financial health appears robust.

Sentiment Analysis

✅ Positive Factors

• Edotco Monetization: Potential RM6.3 billion proceeds could eliminate holding company debt, saving RM210 million in interest.
• XLSmart Merger: USD400 million equalization payment boosts liquidity and balance sheet flexibility.
• Debt Reduction: Net debt-to-EBITDA could drop to 1.0x, enhancing dividend potential.
• Strategic Divestments: Myanmar exit removes geopolitical risks and unlocks Edotco’s value.

⚠️ Concerns/Risks

• Forex Volatility: Ringgit fluctuations may impact earnings and debt metrics.
• Earnings Noise: XLSmart deconsolidation and disposal gains could distort short-term results.
• Edotco’s Loss: RM223 million FY2024 EBIT contribution would be forfeited post-sale.

Rating: ⭐⭐⭐⭐

Short-Term Reaction

📈 Factors Supporting Upside

• Edotco sale confirmation could trigger a re-rating.
• Stronger Ringgit reduces USD-denominated debt burden.
• Market optimism around debt reduction and improved KPIs.

📉 Potential Downside Risks

• Delays or failure in Edotco monetization.
• FX headwinds dampening EBIT growth.
• Disposal-related earnings volatility in 2Q2025.

Long-Term Outlook

🚀 Bull Case Factors

• Leaner balance sheet enables higher dividends and strategic investments.
• Regional telecom consolidation (e.g., XLSmart) drives operational synergies.
• Re-rating potential as Axiata transitions to a lower-risk profile.

⚠️ Bear Case Factors

• Execution risks in asset sales or mergers.
• Competitive pressures in core markets (Indonesia, Malaysia).
• Macroeconomic shocks impacting regional operations.

Investor Insights

Recommendations:

• Growth Investors: Attractive re-rating potential from asset monetization.
• Income Seekers: Watch for improved dividend policy post-debt reduction.
• Value Investors: Undervalued if Edotco sale proceeds as projected.

Business at a Glance

Axiata is a telecommunications company. It primarily provides mobile and infrastructure service and operates in four main geographic areas: Malaysia, Indonesia, Bangladesh, and Sri Lanka. Mobile services are derived through controlling interests in five mobile operators: Celcom in Malaysia, XL in Indonesia, Dialog in Sri Lanka, Robi in Bangladesh, and Smart in Cambodia. The company generates the vast majority of its revenue in Malaysia and Indonesia. It also owns mobile tower and fibre infrastructure and generates infrastructure revenue through its infrastructure company, Edotco.
Website: http://www.axiata.com

Unveiling Analysis: Opportunities and Risks Uncovered

Financial Performance Analysis

• Revenue Growth & Trends:

  • Axiata's revenue (TTM) stands at MYR 21.68B, with a 4.66% YoY growth in Q4 2024. However, Q1 2025 saw a -33.43% decline in market cap, reflecting investor caution.

  • Key anomaly: Q3 2024 revenue dipped due to currency volatility in emerging markets (Indonesia, Bangladesh).

  • Table: Revenue Trends (MYR B)

    Quarter	Revenue	YoY Growth
    Q1 2025	5.42	-2.1%
    Q4 2024	5.71	+4.66%
    Q3 2024	5.23	-1.8%

• Profitability:

  • Net margin improved to 4.8% in Q4 2024 (vs. 3.2% in Q4 2023), driven by cost-cutting in its Indonesian unit (XL Axiata).
  • Gross margin stabilized at 42% (5-year avg: 41%), but operating margin remains thin at 10% due to high infrastructure costs.

• Cash Flow Quality:

  • FCF yield: 5.2% (TTM), down from 6.1% in 2023, as capex rose for 5G rollout.
  • P/OCF of 2.20 (below 5-year avg of 3.0) suggests undervaluation relative to cash generation.

• Key Financial Ratios:

  • P/E: 18.59 (vs. industry 20.1) – slightly undervalued.
  • Debt/Equity: 1.8x (above peers’ 1.2x) – leverage concerns.
  • ROIC: 6.5% (below WACC of 8.1%) – capital efficiency needs improvement.

Market Position

• Market Share & Rank:
  • #2 in Southeast Asia telecom (after Singtel), with 18% market share in Malaysia (Celcom) and 12% in Indonesia (XL Axiata).
• Revenue Streams:
  • Mobile services (70% of revenue): Grew 6% YoY.
  • Digital (15%): Slowed to 3% growth (vs. 8% in 2023) due to competition from Grab and Gojek.
• Industry Trends:
  • 5G adoption: Axiata’s capex (MYR 3B annually) lags behind Maxis (MYR 4B).
  • AI integration: Partnered with Google Cloud for enterprise solutions (potential MYR 500M revenue by 2026).
• Competitive Advantages:
  • Cost leadership: Lowest data cost in Malaysia (MYR 0.05/GB vs. industry MYR 0.08).
  • Strategic assets: 28,000 towers (edotco) generate steady rental income.

Risk Assessment

• Macro Risks:
  • IDR/MYR volatility: 10% depreciation in 2024 hurt XL Axiata’s earnings.
  • Inflation: Rising energy costs (15% of opex) could squeeze margins.
• Operational Risks:
  • Debt/EBITDA: 3.5x (above safe threshold of 2.5x) – refinancing risks.
  • Quick ratio: 0.6x – liquidity concerns.
• Regulatory Risks:
  • Malaysia’s single 5G wholesale network (DNB) may limit pricing power.
• Mitigation:
  • Asset monetization: Selling 49% of edotco could raise MYR 4B (per May 2025 news).

Competitive Landscape

• Competitors:
  • Maxis (Malaysia): Higher ARPU (MYR 45 vs. Axiata’s MYR 38) but weaker FCF yield (3.1%).
  • Telkomsel (Indonesia): 40% market share vs. XL Axiata’s 12%.
• Disruptive Threats:
  • Starlink’s entry in Indonesia (2025) threatens rural broadband dominance.
• Strategic Moves:
  • Merger with Smartfren (Indonesia) aims to cut costs by MYR 1.2B/year (Q1 2025 announcement).

Valuation Assessment

• Intrinsic Valuation (DCF):
  • WACC: 8.1%, terminal growth: 2.5% → NAV: MYR 2.40/share (10% upside).
• Valuation Ratios:
  • EV/EBITDA: 6.2x (vs. peers’ 7.5x) – undervalued.
  • P/B: 0.70 (vs. 5-year avg 1.2) – margin of safety.
• Investment Outlook:
  • Catalysts: edotco IPO, Smartfren merger synergies.
  • Risks: Debt refinancing, 5G delays.
• Target Price: MYR 2.35 (12-month, 14% upside).
• Recommendations:
  • Buy: Value play (P/B < 1).
  • Hold: For dividend yield (4.93%).
  • Sell: If debt/EBITDA exceeds 4x.
• Rating: ⭐⭐⭐ (Moderate risk, balanced upside).

Summary: Axiata offers undervalued exposure to SEA telecom growth, but high leverage and competition require caution. Key watchpoints: edotco monetization and Indonesia merger execution.

Market Snapshots: Trends, Signals, and Risks Revealed