Axiata’s growth to be driven by emerging, frontier market investments: Moody’s

KUALA LUMPUR: Diverse emerging and frontier market investments will drive Axiata Group Bhd’s growth and keep credit quality stable over the next one to two years, according to Moody’s Investors Services.

Moody’s said Axiata’s revenue would grow 2.0-2.5 per cent in 2020 and 2021, despite a low-single-digit revenue decline at its domestic mobile unit, Celcom Axiata Bhd.

“Growth in its emerging and frontier market operations, including stable earnings from tower company edotco Group Sdn Bhd, will help mitigate revenue contraction at Celcom,” it added.

Celcom currently contributes 26 per cent of Axiata’s consolidated revenue and 23 per cent of consolidated earnings before interest, taxes, depreciation and amortisation (EBITDA).

As Axiata’s investments in emerging markets mature, Moody’s expects them to contribute more meaningfully to overall credit quality.

“Frontier-market subsidiaries are already accounting for a growing portion of Axiata’s cash flow.

“We expect Celcom’s revenue contribution to Axiata to remain around 25 per cent through 2020-2021, after declining to 26 per cent for the first half of 2020 from 30 per cent in 2018.

“Stiff mobile-sector competition in Malaysia will keep Celcom’s profitability low,” it said.

Moody’s said increasing revenue and EBITDA contribution from Axiata’s 63 per cent-owned regional tower subsidiary, edotco Group Sdn Bhd, provides the group with a steady stream of contractual revenue and earnings.

It said edotco would contribute about 10 per cent of consolidated EBITDA through 2020-2021, which lends a higher degree of certainty to Axiata’s revenue than its faster growing but potentially more volatile emerging market earnings base.

Moody’s expects Axiata to continue seeking in-country consolidation opportunities, as well as smaller-scale acquisitions to grow inorganically, which if debt-funded would increase the company’s leverage.

“Its tower subsidiary edotco will also continue to grow in scale through debt-funded acquisitions, which could distort leverage metrics at the consolidated Axiata group.

“However, management remains committed to maintaining Axiata’s reported gross leverage below 2.5x over the next two to three years,” it said.

Source: NST