Axiata may need to make bad debt write-offs: PublicInvest

PETALING JAYA: PublicInvest Research cautioned that Axiata Bhd may be required to make bad debt write-offs in the future if tax payment its 80% Nepalise unit Ncell Pvt Ltd made is classified as non-recoverable by the auditor.
On Monday, Axiata announced that Ncell made an additional advance deposit of NPR13.6 billion (US$133 million/RM559 million) on behalf of previous owner TeliaSonera Norway, after the first payment of US$94 million (RM400.5 million) made back in May 2016.
PublicInvest Research said the total amount of US$227 million would now be recognised as receivables and it remains sceptical over the recoverability of this sum from TeliaSonera Norway.
PublicInvest Research understands that Axiata has accounted for the US$94 million tax implication in its purchase consideration of Ncell and has therefore, booked in US$157 million as negative goodwill in its balance sheet.
“Given that the total tax deposit now amounts to US$227 million, the potential net impact on Axiata’s earnings (if the deposit is deemed non-recoverable and write-off is required) would be US$70 million or about RM300 million (about 22% of FY18F earnings),” said the research house.
Although there will not be any immediate impact on its earnings, PublicInvest Research, which is maintaining a “neutral” call on Axiata with a target price of RM4.70, said the group’s cash reserves will be further squeezed, and it will hasten the group’s asset divestment exercise.
“After disposing a 10% stake in its Cambodian unit, Smart, we think there would be more of such divestment in the near future to enable the group to raise sufficient capital to fund expansions as well as to pare down borrowings,” it said, noting that Axiata is likely to divest its entire stake in Idea and M1 and part of Dialog and XL Axiata.
Meanwhile, Kenanga Research said it is neutral on the latest corporate development as the conclusion of the long overdue tax dispute could provide a much-needed playing field for Axiata to operate and promote Ncell smoothly.
The research house reiterates its “market perform” call on Axiata with an unchanged target price of RM4.70.
As of first quarter 2017, Ncell’s revenue and earnings before interest, taxes, depreciation and amortisation (ebitda) stood at RM576 million and RM385 million each, which accounted for about 10% and 18% to Axiata group.
Axiata shares rose one sen to close at RM5 yesterday on some 3.39 million shares done.