Boost Bank's Expansion And Indonesian Consolidation Will Strengthen Future Operations

Key Takeaways

• The Dialog and Airtel merger in Sri Lanka and potential mobile consolidation in Indonesia are set to enhance market position and profitability.
  
• Cost management, CapEx discipline, and debt reduction initiatives are projected to boost earnings growth and free cash flow sustainability.
  
• Increased competition and external funding needs, combined with macroeconomic and currency risks, could negatively impact revenue growth, profitability, and financial stability.

Catalysts

An investment holding company, provides telecommunications services.

• The merger between Dialog and Airtel in Sri Lanka, progressing ahead of schedule, is likely to drive future synergies and efficiencies, enhancing EBIT growth and potentially improving net margins.
  
• Strong cost management and CapEx discipline across the group have significantly boosted EBIT by 37.7% year-to-date, which is expected to continue strengthening earnings as operational efficiencies are realized.
  
• The ongoing negotiations for mobile consolidation in Indonesia, if successful, could lead to market expansion and increased ARPU, thereby positively impacting revenue growth.
  
• Boost Bank's strategic growth after its launch, despite initial start-up costs, is expected to drive future revenue growth as the customer uptake and deposit book expand.
  
• The management's focus on reducing net debt to EBITDA to a sustainable level (2.5x by 2026) through asset monetization and debt reduction initiatives will likely enhance free cash flow and support earnings growth.

Axiata Group Berhad Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Axiata Group Berhad's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 5.1% in 3 years time.
• Analysts expect earnings to reach MYR 1.3 billion (and earnings per share of MYR 0.14) by about January 2028, up from MYR 1.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting MYR1.7 billion in earnings, and the most bearish expecting MYR790 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.2x on those 2028 earnings, up from 18.2x today. This future PE is greater than the current PE for the MY Wireless Telecom industry at 13.7x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.74%, as per the Simply Wall St company report.

Axiata Group Berhad Future Earnings Per Share Growth

Risks

• Social unrest and internet shutdowns in Bangladesh, as well as market softness in Indonesia, could adversely impact revenue growth in these regions.
  
• Increased competition and pricing pressures in Indonesia and Malaysia present risks to maintaining or increasing ARPU, which can negatively impact revenue and net margins.
  
• The need for potential external funding for Link Net's fiber expansion indicates potential strains on financial resources and could impact earnings.
  
• Changes in macroeconomic conditions in Sri Lanka and Bangladesh, such as affordability issues and currency fluctuations, introduce risks to revenue stability and profitability.
  
• Potential volatility in ForEx and interest rates could increase net debt levels, which might affect net margins and earnings.

Valuation

• The analysts have a consensus price target of MYR2.82 for Axiata Group Berhad based on their expectations of its future earnings growth, profit margins and other risk factors. 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 MYR1.95.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MYR25.2 billion, earnings will come to MYR1.3 billion, and it would be trading on a PE ratio of 26.2x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of MYR2.26, the analyst's price target of MYR2.82 is 20.0% higher.
  
• 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.