KUALA LUMPUR (Dec 7): Axiata Group Bhd's share price fell 10 sen in the morning session on Wednesday (Dec 7) despite the telecommunications group announcing a special dividend from proceeds of the Celcom-Digi merger.

The stock, which opened at RM3.14, five sen higher than its previous closing price of RM3.09, dropped 10 sen or 3.18% to RM3.04 in the first 30 minutes after the opening bell rang.

As of 11.05am, the counter was down four sen or 1.29% to RM3.05, with 531,300 shares transacted. At RM3.05, Axiata was valued at RM28 billion.

On Tuesday (Dec 6), Axiata announced a special dividend of four sen per share with payment date to be determined later, following the completion of the Celcom-Digi merger on Nov 30.

With the merger completion, Axiata and Telenor Asia Pte Ltd now have equal ownership of 33.1% each in the newly merged entity named CelcomDigi. The proposal for the merger of Celcom Axiata Bhd and Digi.Com Bhd's mobile telecommunications network operations was first announced in April last year.

Axiata received RM2.5 billion cash from Digi.Com and RM300 million from Digi's parent company Telenor, as part of the transaction.

The bulk of the cash proceeds from the merger exercise will be channelled towards strengthening its balance sheet by paring down Axiata's debt, with the special dividend to reward shareholders stemming from the remaining cash.

Reason for the stock's retreat is deemed unknown although investors might have factored in the cue over the government's proposal to review plans for Malaysia's 5G network earlier in the week and analysts' take on Axiata's future prospects ahead.

To-date, five major mobile network operators — Celcom Axiata, Digi Telecommunications Sdn Bhd, Telekom Malaysia Bhd, U Mobile Sdn Bhd and YTL Communications Sdn Bhd — have commenced retail 5G services to end users, following the execution of their respective access agreements with Digital Nasional Bhd (DNB) on Oct 31.

Prime Minister Datuk Seri Anwar Ibrahim on Monday (Dec 5) claimed that the award of the 5G project to Swedish telecommunications giant Ericsson by DNB in July last year, which he said was worth RM11 billion, would be re-evaluated, as it was not carried out in a transparent manner by the previous government.

Insisting that the tender process for the 5G network roll-out was done transparently, DNB has pledged to work with Putrajaya and extend its fullest cooperation to facilitate the review of the award of the roll-out.

Twelve out of 20 analysts tracking Axiata have a "buy" or "outperform" recommendation on the stock, while seven have a "hold" or "neutral" call with only one having a "sell" call, according to Bloomberg at the time of writing.

The analysts have given a 12-month consensus target price (TP) of RM3.85, with the TPs ranging from RM2.80 to RM5.70.

Apex Securities Bhd analyst Lee Cherng Wee wrote in a note on Wednesday that Axiata expects financial year 2023's (FY23) underlying profit after tax and minority interest to be lower due to integration costs incurred by the merger between Celcom and Digi.

He said Axiata's management noted that its dividend target of 20 sen by 2024 is not achievable after being derailed by Covid-19 in the past two years with the hope of achieving this target by 2027.

Lee added that the group's management also plans to lower gross debt or earnings before interest, taxes, depreciation and amortisation to 2.5 times by 2025 from 3.19 times in the third quarter ended Sept 30, 2022.

He also adjusted his FY22-FY24 forecast figures to account for the merger of Celcom and Digi effective Dec 1 by removing the revenue portion of Celcom and including 33.1% share of profits from the MergedCo.

"After a slew of [mergers and acquisitions] this year such as Edotco tower, LinkNet and Celcom-Digi, Axiata aims to transform itself from a telco to a techco via asset delayering in the next three years.

"We are slashing our revenue forecasts for [FY22 by 2%, FY23 by 25%, and FY24 by 25%] while earnings per share estimates are reduced by [6% for FY22, 31% for FY23, and 16% for FY24 for which] FY23 earnings are expected to be severely impacted by integration costs.

"Going forward, [Axiata's] management is cautious on macroeconomic challenges that could impact its outlook such as global inflationary pressures, higher interest rates, currency volatility, and regulatory risks," he said.

Lee maintained his "buy" call on Axiata with a higher TP of RM4.02 from RM3.65 previously based on sum-of-parts after accounting for the Celcom-Digi merger and higher stake in LinkNet. 

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