Axiata has sharpened digital business strategy, says CIMB Research


Under CEO Tan Sri Jamaludin Ibrahim, Axiata is focusing on digital financial services and enterprise Internet of Things (IoT).

Under CEO Tan Sri Jamaludin Ibrahim, Axiata is focusing on digital financial services and enterprise Internet of Things (IoT).

KUALA LUMPUR: CIMB Equities Research says Axiata has sharpened its digital business strategy to focus on digital financial services and enterprise Internet of Things (IoT) going forward.

It said on Thursday that the focus followed after the telco had experimented and invested US$150mil in the digital business.

“Axiata is sharpening its focus on two key areas: i) digital financial services, specifically on micro transactions (payment, remittance, insurance, lending, savings) where it is well-positioned vs. banks due to the small value of transactions and given its enormous subs data for credit scoring, and ii) enterprise Internet of Things (e.g. fleet management).

CIMB Research issued the research report after it hosted Axiata on a two-day non-deal roadshow in Kuala Lumpur on June 15 and 16.

It said group CEO Tan Sri Jamaludin Ibrahim, group CFO Vivek Sood, Celcom deputy CEO Azwan Khan and head of investor relations Clare Chin met 11 fund management firms in one-on-one and group meetings.

The non-deal roadshow provided the latest updates to investors on the group’s strategy in three key areas: core mobile operations, digital business and edotco.

Celcom aims to fully fix its sales and distribution issues by early-2018F. Initiatives include improving brand visibility, rollout of new sales automation tools/dealer app and revamping the sales force.

Celcom has also flattened the organisation structure from 13 to six levels, with cross-functional KPIs.

Its 4G coverage should be on par with its peers by year-end, while launch of new products now take just two to three weeks (three to four months previously).

Celcom is also focused on cost cuts via stringent controls, simplifying processes and digitisation.

Axiata aims to grow edotco organically and inorganically over the next few years. After its recent tower purchase in Pakistan, edotco is actively looking to make further acquisitions in Southeast Asia and South Asia to propel itself to become one of the top five largest independent tower companies globally from 12th currently.

Axiata is in no hurry to monetise edotco via an IPO, as edotco has recently raised US$500mil through a primary placement to INCJ and KWAP to fund future growth. Sharpening focus on two key areas for digital business

Other highlights: a) Axiata will consider selling M1 if it gets a good premium over current share price; b) Axiata believes Ncell’s capital gains tax issue is fully resolved after paying the 15% advanced tax; c) Axiata may review its investment in Idea, as its shareholding will be diluted from 20% to 9.9% if the Idea-Vodafone merger materialises.

“We maintain our Hold rating with an unchanged sum-of-parts based target price of RM5.20. In terms of outlook, we believe Axiata’s earnings hit a trough in 4Q16-1Q17 and will slowly recover from 2H17F.

“FY17F EV/OpFCF (enterprise value/ operating free cashflow) of 25.8 times is at a 53% premium over the Asean telco average but should drop sharply to 16.9 times in FY18F.

“Upside risk: earlier-than-expected Celcom recovery; downside risk: keener competition across its operating markets,” CIMB Research said