KUALA LUMPUR (Aug 30): Analysts appear to have turned cautious on the outlook for regional telecommunications group Axiata Group Bhd, as its recent weaker-than-expected quarterly results prompted concerns over challenges it faces in some frontier markets, while the management is busy balancing a stretched balance sheet from tipping over.
The latest earnings revisions resulted in further decline in the consensus target price (TP) for Axiata to RM3.24 on Wednesday, versus RM3.28 on Aug 2 and between RM3.31 and RM3.35 last month, based on analysts polled by Bloomberg.
In terms of researchers' ratings, there were eight "buy" calls, 12 "hold" calls, and three "sell" calls.
Markets also appeared to be pricing in Axiata’s weaker quarterly results on Wednesday, with its share price retreating seven sen or 2.7% to RM2.51 in morning trade, valuing it at RM23.04 billion. Year to date, the counter had fallen 17%.
Kenanga Research now projects Axiata to incur a loss for the financial year ending Dec 31, 2023 (FY2023), versus a profit previously, while also slashing its FY2024 earnings forecast by 35%.
Although the research house maintained its “outperform” call on Axiata, it cut its TP by 14% to RM3.60 from RM4.18, as results were deemed “disappointing” for the first half ended June 30, 2023 (1HFY2023).
“We continue to like Axiata for its strong foothold in the growing telco markets in the region, its dominant position in the telco tower sector in the region via edotco, and the strong execution of its merger and acquisition strategy, having concluded major acquisitions in Indonesia and the Philippines recently,” Kenanga said in a note on Wednesday.
On Tuesday, Axiata reported that its net loss widened to RM576.21 million for 2QFY2023, from RM106.38 million a year ago, due to higher finance costs and its Nepal operation’s non-cash impairment of assets and capital gains tax write-off following the unfavourable outcome from the bilateral investment treaty arbitration proceedings in June.
Maybank Investment Bank also lowered its net profit forecasts for Axiata by 45% for FY2023, 16% for FY2024 and 12% for FY2025, revising its TP to RM3.40 from RM3.50 previously, but maintaining its “buy” rating.
“We think the scenario of weak FY2023 earnings is somewhat priced in, and with the management focusing on balance sheet repair and being open to asset monetisation, the overall risk-reward remains positive, in our view,” the research house said in a note on Wednesday.
Hong Leong Investment Bank also kept its “hold” rating, but lowered its TP to RM2.64 from RM2.83 after an earnings revision, saying that potential corporate exercises may unlock values in Axiata, including tower asset and digital businesses listings.
“We like Axiata's regional exposures, with focus on emerging countries, which may deliver great growth potential. While we believe that the CelcomDigi merger will reward Axiata over the long term, regulatory (especially in Nepal) and economic (Sri Lanka) risks are major concerns,” said the research house.
MIDF Research, on the other hand, commented that Axiata’s latest results reflected that the group had yet been able to fill the earnings void after the deconsolidation of Celcom, which used to be the group's biggest profit contributor.
“Moreover, its existing operating companies had a mixed performance. Nonetheless, we anticipate a better recovery in its Indonesian and Sri Lanka operations in 2HFY2023,” MIDF said, maintaining its “neutral” rating, with a TP of RM2.62.
Meanwhile, it is worth noting that TA Securities upgraded its rating to “buy” from “hold” on Wednesday, while maintaining its TP of RM2.80, as it sees “improved upside potential”, while also cautioning about challenges to Axiata's overseas operations.
“While Axiata’s regional presence offers growth opportunities, we remain cautious about the challenges posed by heightened macroeconomic headwinds (a stronger US dollar and higher interest rates), especially across its frontier markets, including Bangladesh, Sri Lanka, and Nepal,” the research house said.