AXIATA (6888) - Three-pronged approach for Axiata

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TELCOS
Saturday, 21 Apr 2018
by b.k. sidhu

JUST like how the cellular telecommunications industry is changing, Axiata Group Bhd
 the regional telecoms company, is looking at a three-pronged approach towards driving its business.
The stagnating cellular business has much to do with the new areas Axiata is veering in order to bring back growth.

The days of double-digit growth for a saturated industry is now long gone and the group, according to its president/CEO Tan Sri Jamaludin Ibrahim, is looking at a “mid single-digit growth’’ over the next three-five years for its sprawling cellular empire that is spread across South and South-East Asia.

Axiata is paying more attention to the fibre-to-home business though it is seen to be a latecomer in this area. The hurdles are there but it is left with no choice given the stagnating cellular environment. A fixed-mobile-wireless convergence space gives it plenty room to manoeuvre in the eleven markets.

“In many cases wireless can do the job, and some cases we need fibre, but fibre is the ultimate. In Malaysia, we may be late in the game but not in many other areas,’’ says Jamaludin in an interview with StarBizWeek.

Combined with its over 30,000 towers by end-June, Axiata plans to roll out fibre optics to areas where it sees demand. Besides that, a collaboration with Telekom Malaysia Bhd
is being hammered out to give it access to the latter’s high speed broadband network.

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Does this then allude to the re-merger between Axiata and TM?

Jamaludin is not looking in that direction. For him, it is about getting the best fit via collaborations rather than a merger to move ahead. Khazanah Nasional Bhd is the parent company of both Axiata and TM.

“It (the re-merger) looks good on paper... instead of a re-merger at this period, we are spending more time actively exploring alternative commercial and economic options that can come from partnerships and collaboration in mobility, fixed broadband and backhaul,’’ Jamaludin says.

Fixed, mobility and wireless broadband are on its plate and Axiata is also equipped to offer over-the-counter type of offerings with over 30-odd digital companies within its ambit. Though it will streamline that operations, it gives Axiata the advantage to get to the end users in terms of content be it music, financial transactions and Internet of Things (IoT) offerings.

Jamaludin says with such a base, Axiata is also ready to get into the enterprise market by offering business-to-business enterprise solutions. Digitalisation is on the cards and that is related to bringing down cost, he adds, though capital expenditure for the entire group will be slightly higher at RM7bil this year compared with RM6.5bil last year. Initial funding for fibre is RM200mil to RM300mil, he adds.

“While we are a mobile centric company, we are moving into a convergence company with our triple core strategy,’’ he says. The revenue streams from its other business is projected to start picking up. Axiata’s revenue is heavily dependent on the mobile business, which contributed 80% towards group revenue for financial year 2017.

“Our aspiration, not forecast, that by 2021 and based on valuations is that the revenue contribution from the mobile business will be 70% from our mobile-fixed business, towers 10% (15% now), and 20% digital services (zero now). The overall pie will just get bigger,’’ says Jamaludin.

JF Apex Securities Lee Cherng Wee says “they have an advantage with towers but a lot of ground work needs to be done, including getting all the various approvals.

“It depends which country they will start first and by getting into the fibre game they will need to come out with a lot of investment. But if they do not get into the fibre game, it is a loss of opportunity,’’ he says.

For financial year ended Dec 31, 2017, Axiata’s net profit grew to RM909.48mil from RM504.25mil in the previous corresponding period, while revenue increased to RM24.40bil from RM21.57bil a year earlier. For 2018, Bloomberg consensus figures for net profit is RM1.44bil, revenue RM25.4bil, ebitda RM9.7bil, and earnings per share of 17 sen. There are 15 broking houses that have a “hold” on the stock, nine a “buy” and two a “sell’’ call. The 12 month target price is RM5.61 while the last traded price is at RM5.45 a share.

With these changes and the potential IPO of edotco Group Sdn Bhd, is Axiata in for a re-rating?

“They deserve a re-rating and the listing of edotco is the catalyst,’’ adds Lee.


Fast improving: National shuttler Iskandar Zulkarnain at the National Badminton Championships, one of the sports events sponsored by Celcom Axiata. Jamaludin says the company can now compete effectively.

Towering ahead

Topping the to do list is also the potential listing of its tower business, edotco. Jamaludin did not preclude a share placement to raise funds too even though an IPO (initial public offering) makes more sense at this point.

Speculation is rife that they may raise US$500mil, though some recent reports suggested US$1bil. Axiata has 62.37% stake in the tower company, Khazanah (10.75%), Japan’s Innovative Network Corp (21.51%) and Kumpulan Wang Persaraan (5.38%).

edotco needs funding because Jamaludin is talking about “organic and inorganic’’ growth and the US$400mil raised earlier by share placements is not enough with such ambitions of making edotco one of the top five globally.

“That’s our aspiration, to be the 5th largest by 2021, via acquisitions and organic growth,’’ Jamaludin says.

But its playground will remain “Southeast Asia and Asia.’’

“We won’t venture into Africa or Europe,’’ Jamaludin adds.

It has close to 30,000 towers across Asia and that makes it the 8th largest player globally. edotco as at April last year was valued at US$1.5bil. For full year 2017, its ebitda was RM685mil, revenue RM1.55bil, and net profit came in at RM183mil.

The question is valuation, while its last published figure is US$1.5bil, the market is also speculating that it could be anything from US$2bil to US$2.5bil or even higher. Axiata has the capacity to borrow but may swerve from that. It can sell two of its assets - stakes in India’s Idea Cellular (about 8-9%) and Singapore’s M1 (20%). That may take some time though Axiata is saying it is not in a hurry to dispose of those stakes.

Axiata has RM6.8bil sitting with the banks and it has the capacity to take on debts to the tune of RM4.5bil “without affecting its rating’’.

“But if we sell both the India and Singapore investments, we will have a lot of headroom,’’ Jamaludin says.

A listing then may be the best option for now and that explains why it is seeking capital option proposals from bankers.

Those in the know claim that both CIMB Bank and Malayan Banking Bhd
 are crunching some numbers to put a valuation on edotco.

“We cant’ tell you when (the listing)... but we need funding and that we are looking through our options. We are engaging external parties but it is still early days,’’ Jamaludin says.

Digital game

When many companies were just betting on broadband, Axiata started snapping up content creation companies that now gives it a portfolio of about 30 companies. Axiata is now looking to trim it down to at least a dozen digital ventures.

Since 2013, it has invested US$150mil in start-ups and to buy and nurture digital services companies. Since this year, Axiata has decided on four ares that it wants to focus on – fintech, adtech (digital advertising), digital platforms, and IoT solution-enterprise.

“We know where we can compete and where we cannot, we will monetise and exit,’’ he says.

“Fintech is a natural for us. We are doing micro payments, micro remittance, micro insurance credit and micro savings. We do transactions of up to RM1,000 daily. We started in Malaysia, and Sri Lanka is an experiment for the under served market. As of last month, we have 2.2 million users and our transactions are growing by the day.

“We have not reached critical mass but we have the licenses and want to grow the market. Some campuses are already cashless and that is an area for us to develop, among other areas for our fintech solutions,’’ Jamaludin says. He adds that initially the income will be small but it is an area of great potential especially with 5G coming the way and with IoT.


Read more at https://www.thestar.com.my/business/business-news/2018/04/21/threepronged-approach-for-axiata/#6QzkgUBYzK6YqRYI.99