Axiata earnings forecasts lowered after dive in FY16 earnings

PETALING JAYA: Analysts have cut Axiata Group Bhd’s earnings forecasts for FY17 and FY18 following the 75.1% slump in its FY16 earnings.

Axiata shares declined 24 sen or 5.3% to close at RM4.29 last Friday, with 19.02 million shares changing hands.

PublicInvest Research cut FY17 and FY18 earnings forecasts by 17% to 18% to factor in lower contribution from Malaysia, Indonesia and Bangladesh and higher share of associate losses. It also revised the target price from RM5 to RM4.48 with a “neutral” call.

Due to the worse-than-expected earnings, AmResearch, which downgraded Axiata to “hold” from “buy”, cut its FY16F-FY18F earnings outlook by 18%-20%.

With the exception of steady performance from NCell in Nepal and Smart in Cambodia, AmResearch noted that Axiata’s overseas operations largely are still struggling.

“XL Axiata’s turnaround execution is likely to be delayed by lingering accelerated depreciation of old ex-Java equipment,” it added.

PublicInvest Research highlighted that Axiata’s gross debt/ebitda (earnings before interest, taxes, depreciation and amortisation) has reached an uncomfortable level of 2.8 times and is pressured to divest some of its stakes in its overseas subsidiaries in order to rebuild its cash reserves.

“This may be seen as a near-term catalyst, depending on the valuations that it could fetch in the exercise,” the research house said.

Axiata declared a final dividend of 3 sen, bringing FY16 total dividend to only 8 sen which translates to only 40% of FY15 dividend of 20 sen.

AmResearch highlighted that Axiata is the first domestic telco to cut dividends following its spectrum fee payment of RM817 million late last year.