Axiata – Regional Mobile Champion

Axiata, the Malaysia leading Telecommunication Group has been our all time favorite stocks in Bursa Malaysia. Since the demerge exercise of TM & TMI (Axiata) back in 2009, Axiata has then begun its plan to become a Regional Mobile Champion. To date, Axiata classified as one of the most cheapest & high growth Telecommunication Group in Asia. Last month, Axiata once more crowned “Best Telecom Group of the Year” for the third consecutive year by Frost & Sullivan.

Axiata once entered it’s ‘dark’ time due to seemingly ‘overprice’ bought 15% of IDEA Telecom, forked out almost RM 6 billion to pair it’s shares in Spice Telecom after the merging of IDEA & Spice. Altogether, Axiata own 19% of IDEA. In financial year 2010, Axiata had reduced its investment value in IDEA for about RM 1 billion ringgit under impairment loss which lead Axiata fourth quarter 2010 into red.

With 100% share holding on Celcom (M) Berhad, Axiata seems far from it’s fair value. Although Celcom performance currently just below Maxis, most of FH valued Celcom only at around RM 25 – 30 billion which translated into RM 3.00 – 3.50 per share compare to Maxis market capital at RM 41 billion. 

Early this year, Celcom & Digi signed an MOU for Advanced Network collaboration which could see a saving of RM 2.2 billion for both companies in 10 years. The saving figure expected to be seen as early as Year 2012 from both Opex & Capex.

*Source OSK

*Source: OSK

Meanwhile, Axiata is currently sitting on ‘huge cash’ and considering no M&A activities in near term, most analysts expect a special dividend will be announced soon. The return of this excess cash estimated to be ranging from RM 0.60 – RM 1.00 per share.

In addition, mobile telecommunication companies are expected to benefit should government allow them to pass 6% service tax to their prepaid subscriber. This translated into an estimated of 3.5% of revenue and 8.5% profits boost for Celcom in 2011. Celcom is currently having 77% prepaid customer.

Below are latest target price for Axiata. The average target price for all 12 FH is currently at RM5.89 which is 16.4% above the stock closing on 15-Jul-11, at RM 5.06.

At current shares price (RM5.06), Axiata Market Capital is at RM 43 billion. Based on FY2010, Axiata PER was at 24 times and FY2011 forecast profit at RM 3.1 billion, it’s PER will be at only 13.6 times. No wonder most of FH (financial house) giving outperform & overweight call for Axiata shares. Telecommunication companies PER normally ranging from 17 - 20 times, with Maxis currently at 17.9 and Digi at 19.7 times. Given Axiata PER estimated at 17-20 times for it’s forecast FY2011 which at RM 3.16 billion, Axiata stock prices might shoot up between RM 6.32 to RM 7.44 in Year 2012.