PETALING JAYA: Axiata Group Bhd and PT XL Axiata Tbk are unlikely to cease owning a majority stake in PT Link Net Tbk (Link Net) as it would hinder the group’s structural transformation plan for its Indonesian operations, said AmInvestment Bank Bhd.
It reckoned that Axiata’s exposure to Link Net’s nine-month financial year (FY 2023) loss of 274 billion rupiah could improve its profit after taxation and minority interests by about 6% while improving its FY2024 net debt to earnings before interest, taxes, depreciation, and amortisation to 1.97 times from 2.03 times currently.
“This is assuming that Axiata had to sell a 39% equity stake in Link Net to retain a controlling 50% stake,” it said in a company update report.
Nevertheless, AmInvestment said it positively views Axiata’s intention to raise funds by selling a part of its stake in Link Net, which could also mean securing external funding sources and reducing dependency on Axiata to fund the Indonesian operation’s growth.
It said Axiata owns an effective 89% interest in Link Net and is considering raising capital of up to US$500 million (RM2.38 billion) to accelerate its fibre rollout through a combination of both equity and borrowings.
“At this juncture, the plan is still at an early stage and no breakdown has been disclosed,” it said.
The investment bank said it believes that the capital injection will be supportive of the two million new home pass additions, on top of the ongoing one million home pass plans for XL’s customers.
It said the effort is pertinent in accelerating Indonesia’s fixed broadband growth from the republic’s low household penetration rate of 15% currently, behind Bangladesh’s 25%, the Philippines’s 34%, and Malaysia’s 37%.
“Nevertheless, we are cautious about Axiata’s prospects as the group’s finance cost would still increase due to additional debt financing for Link Net’s fibre rollout, digital banking startup losses, and capex expansion of Edotco Group Sdn Bhd in the Philippines,” it said.
AmInvestment Bank has maintained a “Hold” call on the stock with a higher sum-of-parts-based fair value of RM2.95 versus RM2.23 previously to incorporate the higher market valuation of XL Axiata.
As at 3.05pm, Axiata’s share price was down by one sen or 0.36% at RM2.74, giving it a market capitalisation of RM25.15 billion.