KUALA LUMPUR (Nov 8): Analysts are positive about Axiata Group Bhd's (KL:AXIATA) focus on emerging markets while reaping benefits from the CelcomDigi merger over a longer term.

Hong Leong Investment Bank (HLIB) noted that Axiata's recent financial results missed expectations, after its Indonesia-based 61.5% subsidiary XL’s third-quarter core profit after tax of 302 billion rupiah (-38% quarter-on-quarter; -16% year-on-year) brought the nine-month figure to 1.3 trillion rupiah (+32% y-o-y), coming in below the consensus.

Nonetheless, HLIB maintained its full-year forecast pending an analyst briefing in conjunction with Axiata’s results on Nov 28 for the third quarter ended Sept 30, 2024 (3QFY2024).

"Although the potential upside is over 10%, we reiterate 'hold' [on Axiata], with an unchanged sum-of-parts-derived target price (TP) of RM2.70," said the house in a note on Friday.

"We like its regional exposures with focus on emerging countries (markets), which may deliver great growth potential. 

"While we believe that the CelcomDigi merger will reward Axiata over the long term, regulatory and economic risks are major concerns. Other potential corporate exercises that may unlock values include tower asset and digital business listings," the house added.

Meanwhile, Kenanga Research is optimistic about Axiata’s outlook, adding that although XL's nine-month results missed the consensus, it came in within the house's projections.

The research firm is also upbeat about the growth in home broadband at XL. 

Kenanga noted that in late September, XL had completed the migration of 750,000 subscribers from First Media and the transfer of three million home passes, bringing its total fixed broadband subscriber base to over one million.

"Looking ahead, XL does not rule out the possibility that home broadband penetration rates could reach 30% to 35%, as seen in some regional markets. 

"This implies potential subscriber base expansion to 1.8 million to 2.1 million customers based on its current network. Nevertheless, this growth would likely unfold over a longer timeline of up to three years, due to the lag between network deployment and subscriber take-up."

Kenanga projects a turnaround for Axiata, forecasting a net profit of RM692 million for FY2024, reversing the RM125 million net loss in FY2023. 

The house further expects mid- to high-single-digit revenue growth and cost efficiency to drive a 34% y-o-y rise in core earnings per share in FY2024.

Kenanga upheld its 'outperform' call with a TP of RM2.75, on the back of Axiata’s plans to deleverage and growth prospects for its digital and tower assets across emerging markets.

Of the analysts covering Axiata, 12 have issued 'buy' calls, while nine recommended 'hold', and two advised to 'sell'.

At time of writing on Friday, Axiata's share price had slipped three sen or 1.32% to RM2.24, valuing the company at RM20.57 billion.

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