Axiata on track to pare debt, sustain dividends
The research house told clients its target price has been raised to RM3 from RM2.50, based on a sum-of-parts valuation.
'We currently assume tower subsidiary Edotco Group Sdn Bhd's valuation at US$3.5bil or around RM14.9bil as our base case, which implies an enterprise value to earnings before interest, taxes, depreciation and amortisation multiple of nine times.
'We think this is fair as previous transactions also traded in the range of nine to 11 times. Key risk to our recommendation and target price is the failure to dispose of Edotco or if it is sold at a lower valuation than we have assumed,' the research house said.
At last look, Axiata was trading at RM2.52.
The research firm noted Axiata was getting closer to disposing of its 63% equity stake in Edotco following the completion of the disposal of Edotco's Myanmar tower operations for US$90mil recently.
'The upcoming disposal of Edotco is in line with its asset monetisation strategy to create a sustainable dividend company by next year. For now, the company is committed to paying annual dividends per share of 10 sen, which implies a dividend yield of 3.9%.
'The company plans to use the proceeds of any disposal to pare down the holding company's debt and thus allow it to progressively increase dividend payouts in future.'
The research house said the debt reduction exercise was timely, given that Axiata had been benefiting from higher yields on US long-dated bonds.
'Last year, the company had realised a gain of RM306mil by making partial early redemption of European Medium Term Notes (EMTNs) for a principal amount of US$272.1mil for only US$200mil.
'We estimate that the company can realise a gain of another RM1bil from making full redemption on RM3.2bil of remaining EMTNs outstanding,' BIMB Research said.
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