Digital Disintermediation And Fierce Competition Will Compress Margins

Key Takeaways

• Accelerating digital disintermediation and market commoditization threaten core revenues, with intense competition further pressuring profitability and margins in primary markets.
  
• High debt, regulatory demands, and emerging market exposure create persistent risks to cash flow stability and earnings predictability.
  
• Diversification into digital services, portfolio optimization, and technology innovation are strengthening operational efficiency, revenue growth, and market leadership while reducing reliance on legacy businesses.

Catalysts

An investment holding company, provides telecommunications services.

• Axiata faces the structural threat of digital disintermediation, as an accelerating shift to over-the-top messaging, video platforms, and other digital services bypasses traditional telco offerings, which directly undermines its core revenue streams and puts ARPU expansion at significant risk over the long term. This is likely to limit revenue growth as data connectivity becomes an even more commoditized utility.
  
• The company's continued exposure to intensely competitive market dynamics in Indonesia and Malaysia means that price wars and commoditization of connectivity could suppress ARPU and result in persistent downward pressure on profitability, with management itself noting no clear path for market repair in Malaysia and only tentative stabilization in Indonesia, which endangers net margins across its largest OpCos.
  
• High debt levels and ongoing capital intensity, especially with the need to invest in rapid technology cycles such as 5G and potentially 6G rollouts, threaten to constrain Axiata's future cash flows, reduce earnings flexibility, and raise refinancing risk, particularly if industry economics do not improve markedly, or if interest rates remain higher for longer.
  
• Despite efforts to optimize operational cost and lower capex in the near term, persistent regulatory and ESG pressures could compel Axiata to engage in network upgrades and environmental compliance spending, raising capital expenditure requirements in a way that diminishes long-term free cash flow and further compresses margins.
  
• The company's significant presence in frontier and emerging markets such as Bangladesh, Sri Lanka, and Cambodia leaves it highly susceptible to currency volatility, macroeconomic instability, and political risk, which could erode consolidated earnings and introduce unpredictable swings in reported profits and cash flows in coming years.

Axiata Group Berhad Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Axiata Group Berhad compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Axiata Group Berhad's revenue will decrease by 18.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.8% today to 5.6% in 3 years time.
• The bearish analysts expect earnings to reach MYR 647.5 million (and earnings per share of MYR 0.07) by about July 2028, down from MYR 1.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 27.8x on those 2028 earnings, up from 22.4x today. This future PE is greater than the current PE for the MY Wireless Telecom industry at 21.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.21%, as per the Simply Wall St company report.

Axiata Group Berhad Future Earnings Per Share Growth

Risks

• The accelerating adoption of digital financial services and e-commerce across Southeast and South Asia opens up substantial cross-selling and growth opportunities for Axiata's digital and fintech platforms, which could drive revenue and profit expansion.
  
• The company's ongoing portfolio optimization-including successful mergers, structural separation of infrastructure assets, and targeted M&A activity-has already resulted in significant cost rationalization and margin improvement, suggesting that future efforts could further enhance operational efficiency and net margins.
  
• The scaling of Axiata's digital businesses (Boost, ADA) in payments, adtech, and enterprise services is leading to diversified revenue streams and higher non-traditional revenue growth, which reduces reliance on legacy connectivity businesses and supports overall earnings.
  
• 5G network rollouts and advancements in AI, IoT, and cloud services are expected to drive explosive data consumption and boost demand for enterprise solutions, enabling ARPU growth and broadening Axiata's addressable market, potentially strengthening long-run revenue and EBITDA.
  
• Continued investments in high-growth frontier markets and successful market consolidation efforts place Axiata in leading positions in several key geographies, supporting long-term subscriber growth, revenue resilience, and improved returns on invested capital.

Valuation

• The assumed bearish price target for Axiata Group Berhad is MYR1.5, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Axiata Group Berhad's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MYR4.5, and the most bearish reporting a price target of just MYR1.5.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be MYR11.6 billion, earnings will come to MYR647.5 million, and it would be trading on a PE ratio of 27.8x, assuming you use a discount rate of 9.2%.
• Given the current share price of MYR2.55, the bearish analyst price target of MYR1.5 is 70.0% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.