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Friday, February 24, 2017

Growing pains ahead for Axiata shareholders

Author: Tan KW | Publish date: Fri, 24 Feb 2017, 12:06 PM
By Chester Tay / The Edge Financial Daily | February 24, 2017 : 9:03 AM MYT

This article first appeared in The Edge Financial Daily, on February 24, 2017.

KUALA LUMPUR: Axiata Group Bhd, which brought down its dividend payout ratio (DPR) to 50% for the year ended Dec 31, 2016 (FY16), sent a heads-up to shareholders yesterday that the lower dividend policy will be upheld in FY17.

“I would like to stress this is a short-term decision, we should be back to the FY15 level at least within the next two years,” said president and group chief executive officer Tan Sri Jamaludin Ibrahim, adding that the decision was aimed at conserving capital for further growth in the future.

Axiata yesterday announced a DPR of 50%, or eight sen dividend per share, for FY16, from 85% or 20 sen for FY15. It was the lowest DPR for the group since FY10, when it declared 30% DPR or 10 sen payout per share.

“We have not announced anything for FY17,” Jamaludin told a press conference. “All we are saying is that we are looking at a more conservative dividend for FY16 and FY17, so we are giving heads-up to our investors that FY17’s [dividend] might be also quite conservative.”

Describing it as a kind of a “capital deployment strategy”, Jamaludin said the lower DPR will help Axiata prepare for a capital expenditure (capex) of RM6.6 billion in FY17. The capex in FY16 was RM6.1 billion.

“We still see volatility in forex (foreign exchange) that could hit us. All capex are done in US dollars except in Malaysia, and we do foresee a lot of spectrum auctions or renewals over the next two years,” he said.

This, Jamaludin said, would alleviate Axiata’s requirement for more borrowings, particularly those denominated in US dollar.

“Our debt is at a level where we are comfortable with; our balance sheet is quite good; too low of debt is lazy balance sheet, too big and we are exposed. However, to fund the capex and potential in-country consolidation, we decided not to increase so much of our debt, but to use our own money,” he explained.

Axiata’s acting group chief financial officer Yap Wai Yip said that as at Dec 31, 2016, the group’s US dollar-denominated loans amounted to more than US$2 billion (RM8.9 billion), of which US$1.1 billion remained unhedged.

“We want to pare down these debts, so we are bringing back our overseas dividends. If we go all out, we hope we could bring them down to US$200 million this year,” he said.

Axiata reported a net loss of RM309.5 million for its fourth quarter ended Dec 31, 2016 (4QFY16) versus a net profit of RM467.24 million for 4QFY15, due mainly to a significant increase in forex loss, lower contribution from 20%-owned Idea Cellular Ltd in India and weaker performance of Celcom. Revenue grew 8% to RM5.79 billion from RM5.36 billion.

For FY16 as a whole, Axiata’s net profit plunged 80.25% to RM504.25 million from RM2.55 billion a year earlier, while revenue grew 8.46% to RM21.57 billion from RM19.88 billion.

Celcom Axiata Bhd and 66.4%-owned PT XL Axiata Tbk in Indonesia contributed about 30% each of Axiata’s FY16 revenue.

For FY17, Jamaludin said Axiata is aiming for up to 11% growth in revenue and up to 9% growth in earnings before interest, taxes, depreciation and amortisation.

Axiata’s share price began to trend downwards even before the quarterly result announcement yesterday, and the counter settled 27 sen or 5.62% lower at RM4.53 at the close of trading, giving the group a market capitalisation of RM41.63 billion.

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