Axiata Group (AXIATA MK): Edotco monetisation to strengthen balance sheet

15 August 2025

• We came away from the recent management meeting with mixed views. While we acknowledge the group’s strategy emphasis on balance sheet strength and asset monetisation, shift in portfolio diminish its diversification profile.
• Disposal of Edotco could lower net debt/EBITDA ratio to 0.9–1.3x (from 3x).
• Maintain HOLD rating with a higher TP of RM2.56.

Monetisation of Edotco & Link Net to drive capital recycling

Axiata reaffirmed that its 5*5 strategy, anchored on 5 growth pillars: i) synergy delivery in CelcomDigi, ii) market reform in Indonesia, iii) resilience in frontier markets, iv) sustainable value creation for InfraCo, and v) scaling digital business. Near-term priorities remain centred on CelcomDigi integration and XLSmart. Over the medium-term, management is prioritising value realisation from Edotco and Link Net to support capital recycling and deleveraging with longer-term ambitions to scale ADA and Boost ahead of potential monetisation.

Edotco’s disposal to de-risk the balance sheet

With net debt/EBITDA at 3.0x in 1Q25, the potential sale of Edotco (estimated enterprise value US$3.0-3.5bn) could generate RM4.0-5.3bn in cash proceeds. Given Edotco’s debt at c.RM6.1bn (or 27% of total group borrowings), a divestment could lower the group’s net debt/EBITDA ratio to 0.9-1.3x. Malaysia and Bangladesh are Edotco’s key markets, contributing 42% and 34% of 1Q25 Edotco’s revenue, respectively, with tower portfolios of 6.4k (18.9%) and 16.8k (49.6%) sites. The implied EV/EBITDA multiple of 7.8-9.1x is in line with the sector average, and provides liquidity for reinvestment and shareholder value creation.

Maintain HOLD with a higher TP of RM2.56

We raise our 2026-27E earnings forecasts by 21-26% to incorporate higher savings from network integration synergies and stronger JV contributions, driven by the incorporation of higher earnings assumptions from XL. We lift Axiata’s 12-month SOP-based TP to RM2.56 (from RM2.08), reflecting our higher target EV/EBITDA multiple for Edotco at 9x (from 5x) to capture the potential transaction premium. While the deleveraging benefits are clear, frontier market exposure and earnings volatility amid macro environment headwinds temper our near-term view. Maintain HOLD. Upside risks include stronger-than-expected earnings delivery and an improvement in regional economic conditions, while downside risks stem from weaker-than-expected earnings should regional economic conditions deteriorate.

Key Financials

Sources: Company, Bloomberg, Phillip Research forecasts

More value unlocks on the horizon

Axiata reaffirmed its 5*5 strategy, which aimed at delivering both operational efficiency and value creation. The strategy’s pillars include: i) synergy realisation at CelcomDigi, ii) structural transformation in Indonesia, iii) resilience in frontier markets, iv) sustainable value creation for InfraCo, and v) monetisation of digital businesses. The near-term core focus remains on CelcomDigi and XLSmart, while medium-term plans are to focus on crystallising value from Edotco and Link Net to fund capital recycling and deleveraging. Longer-term growth will be driven by scaling ADA and Boost towards eventual monetisation. To recap, CelcomDigi has delivered RM555m in synergies and dividends with XLSmart targeting US$300-400m in annual pre-tax cost synergies, while Robi/Dialog has jointly reduced US$ debt by US$93m. We view the strategy’s focus on balance sheet discipline and monetisation focus positively. However, portfolio rebalancing may heighten earnings volatility by reducing diversification and increasing exposure to macro-sensitive frontier markets.

Axiata’s 2024 progress driven by 5*5 strategy

Sources: Company, Phillip Research

Edotco monetisation could improve net debt/EBITDA to 0.9-1.3x

Edotco has long been identified for value unlocking, with the proposed idea of an IPO back in 2018. The plan has resurfaced several times since, gaining renewed momentum in early 2025 following the sale of Edotco Myanmar. Under Axiata’s 5*5 strategy, the group classifies Edotco as a monetisable asset, while the Edotco 4.0 strategy focuses on both operational optimisation and monetisation over 2024-2026. Although no firm deadline has been set, management is actively exploring strategic options to crystallise. With net debt/EBITDA at 3.0x in 1Q25, a full disposal of Axiata’s 63% stake valued in the media report at US$3.0-3.5bn (RM12.7-14.8bn) could generate RM4.0-5.3bn in cash proceeds, potentially reducing the group’s net debt/EBITDA to 0.9-1.3x.

Edotco valuation implies 7.8-9.1x EV/EBITDA

Based on annualised 1Q25 figures, the indicative enterprise value for Edotco implies an EV/EBITDA multiple of 7.8-9.1x, well above the <1x multiple from the US$90m (RM380.4m) sale of its Myanmar tower operations, which reflected the challenging operating environment. Myanmar previously contributed 12% of Edotco's revenue in 2022 before classified as an asset held for sale in 4Q23, ceasing to contribute to Axiata's core earnings thereafter. As of 1Q25, Malaysia and Bangladesh remain Edotco's largest revenue contributors, accounting for 42% and 34% of revenue, respectively in 1Q25. In terms of tower count, Malaysia operates 6.4k towers (18.9%) while Bangladesh leads with 16.8k towers (49.6%). This market concentration, coupled with the scale of these portfolios, should command a valuation premium over Edotco's smaller regional operations. Applying historical regional tower transaction at 8-12x EV/EBITDA multiple, we view the indicative valuation range of US$3.0-3.5bn as justified.

Valuation of historical tower-related deal transaction

Sources: Various, Phillip Research

2Q25 results lower YoY

We expect Axiata’s 2Q25 core net profit to decline QoQ and YoY, falling to RM110-120m (2Q24: RM183m; 1Q25: RM131m) mainly due to the absence of XL’s revenue contribution following the completion of the XLSmart merger in Apr25. XLSmart will be equity-accounted as a jointly controlled entity from 2Q25 onwards. XL had previously accounted for 44% of group revenue in 1Q25. On a positive note, we expect a sequential recovery at Dialog, with management noting that Sri Lanka is emerging from its economic crisis, underpinned by currency stabilisation and a rebound in tourism, which should lift telco demand alongside improving consumer sentiment.

2025 guidance focuses on a single headline KPI

Management has withdrawn the low single-digit revenue growth target from its 2025 headline KPIs as the group shifts its near-term focus towards asset monetisation to reduce debt at the holding company level. As for the EBIT level, the group reiterated the guidance for high single-digit EBIT growth forecasts based on a pro forma 2024 EBIT baseline of RM1.9bn (assuming XL’s deconsolidation and new XLSmart recognised under equity method accounting).

Raise EPS by 21-26% on lower depreciation and higher contribution from JV

We raise our 2026-27E earnings by 21-26% mainly on 1) lower depreciation assumptions to capture potential savings from network integration synergies and the planned decommissioning of 20-30% of overlapping XLSmart sites, and 2) raising JV contributions by 67-73% over 2026-27E, reflecting the incorporation of higher earnings assumptions from XL. Despite the 15% YoY revenue decline in 2026E and only modest 4% YoY growth in 2027E, these should sustain earnings growth of 23% and 5% YoY over 2026-27E. Core net profit margins are projected to improve to 4.3% in 2026–27E from 3.4% in 2025, driven by stronger JV contributions.

Short-term YoY revenue declines post-XLSmart merger

We forecast Axiata’s revenue to contract 27% YoY in 2025E following the completion of the XL merger in Apr25. We expect revenue to further decline by 15% YoY in 2026E on the absence of XL’s contribution, before recovering by a modest 4% YoY in 2027E on the back of steady performance from Axiata’s subsidiaries. EBITDA is expected to mirror this revenue trajectory. At the EBIT level, XL contributed RM369m in 1Q25, which is incorporated into our 2025E earnings forecasts. We anticipate XL’s EBIT to grow c.9% YoY in 2025, underpinned by ongoing cost-optimisation initiatives.

Dividend guidance remains intact

Axiata has maintained a DPS of 10sen since 2023, translating to a payout ratio of 60-75%. Despite the anticipated earnings dilution from 2025E onwards following XLSmart merger, we forecast DPS to remain at 10sen for 2025-27E, implying a higher payout ratio of 150-190% dividend yield of 3.7%. This is consistent with management’s commitment to a minimum annual DPS of 10sen, supported by dividend inflows from key associates and subsidiaries, as well as proceeds from asset disposals, including the XLSmart transaction, which is expected to sustain the payout.

Valuation and recommendation

Balance risk-reward profile

Axiata’s share price has rallied 56% from its Mar25 low, buoyed by improving market sentiment and optimism over ongoing value-unlocking strategies, notably the potential monetisation of Edotco. While this has underpinned the recent re-rating, we see limited scope for a meaningful earnings uplift. Edotco disposal could further tilt earnings exposure towards higher-risk frontier markets such as Bangladesh, Sri Lanka, Nepal, and Cambodia. Earnings are also expected to be diluted from the XLSmart merger, with contributions now equity-accounted rather than fully consolidated. Although telcos typically offer defensiveness during periods of market uncertainty, Axiata’s forward PER of 44x is above its 3-year historical average, suggesting valuations already reflect its near-term prospects. Elevated macro risks in key frontier markets and the absence of near-term catalysts are likely to cap any further upside further.

Maintain HOLD with a higher TP of RM2.56

We lift Axiata’s 12-month SOP-based TP to RM2.56 (from RM2.08), reflecting our higher target EV/EBITDA multiple for Edotco at 9x (from 5x) to capture the potential transaction premium. We view this as fair, given the 9x multiple is in line with the valuation among the SEA tower operators. While positive on balance sheet deleveraging and value-unlocking initiatives, earnings volatility, sizeable frontier markets exposure, and persistent macro headwinds may cap share price upside. Maintain HOLD rating.

SOP Valuation

Sources: Bloomberg, Phillip Research forecasts

Key risks to our HOLD call

Key upside risks include stronger-than-expected earnings delivery and improvement in regional economic conditions. Downside risk would arise from weaker-than-expected earnings due to deterioration in regional economic conditions and inability to monetise its assets.

FINANCIALS