At its close of RM3.25 last Tuesday, Axiata Group Bhd had lost RM20.2 billion of its value with its share price down 40% year-to-date. However, by last Thursday, the stock had retraced some ground to close at RM3.44. With the price still hovering near its lowest in eight years, is Axiata a bargain?
Twelve of the 29 analysts who track the counter have a “buy” on it while 16 others recommend a “hold”, Bloomberg data shows. Only Goldman Sachs has a “sell” and that too at a target price of RM3.70, above what Axiata shares are fetching currently. The average 12-month target price of RM5 implies 50% upside potential — that is if the target prices are not revised lower any further, as they have been this year.
Some value appears to have emerged, if one thinks that Axiata — which owns Celcom Axiata Bhd — should not be cheaper than Maxis Bhd or DiGi.Com Bhd. Axiata’s market capitalisation of RM31.2 billion last Thursday was below Maxis’ RM41.2 billion and DiGi’s RM32.4 billion.
AmInvestment Bank Bhd analyst Alex Goh, whose sum-of-parts-based target price for Axiata is the most bullish among his peers’, says even at RM6.05, Axiata is valued at only 6.5 times forward enterprise value-to-earnings before interest, tax, depreciation and amortisation (Ev/Ebitda), which is 40% of Maxis Bhd’s 11 times.
However, Affin Hwang Investment Bank analyst Isaac Chow, who also used the sum of parts method to derive his RM4.42 target price, has a “hold”. Chow expects Axiata’s operating subsidiaries to record further revenue gains but reckons that stiff competition and rising cost pressures may continue to cap earnings growth and weigh on investor sentiment.
Axiata Group managing director/president and CEO Tan Sri Jamaludin Ibrahim points out that Axiata is only trading at a single-digit price-to-Ebitda, on a par with its regional peers. In fact, at current prices, Axiata’s 5.4 times price-to-Ebitda ratio is below that of Maxis, DiGi, Singapore Telecommunications Ltd and StarHub Ltd.
Still, those who closely track analysts’ recommendations on Bloomberg would have noticed that the average target price had slipped from the average RM7.20 in early 2015 to RM4.92 early last year before recovering to RM5.32 at the start of this year.
Axiata’s share price hit an all-time high of RM6.571 in November 2014 but has since been on a downtrend, reflecting the decline in its earnings. In short, its share price has largely fallen short of average consensus target prices in the past three years.
To be fair, Axiata is not alone. Most of the listed telecommunication stocks in the region have also seen their share prices decline. As at last Thursday, Maxis was down 12.3% year to date to RM5.27 while DiGi was down 18.2% to RM4.17. Across the causeway, StarHub and SingTel, two of the largest telcos listed on the Singapore Exchange, had lost 31.2% and 11.8% respectively.
Axiata, however, is among the worst performers, outperforming only Telekom Malaysia Bhd, which lost over 65% of its value after its share price closed at RM2.19 last Thursday, giving it a market capitalisation at RM8.3 billion.
Most analysts have attributed the decline to the challenging operating landscape of the industry, amid declining profit, competitive pricing and large capital expenditure (capex) requirements. Moody’s Investors Service vice-president and senior analyst Nidhi Dhruv says in a report, “Telecommunications — APAC: 2019 Outlook”, that all Asia-Pacific markets in which Moody’s-rated telecommunication companies operate will face strong competition next year, with new entrants in the competitive industries in Singapore, Japan and Australia.