"No plans to exit (any market) at the moment unless there is an offer too good to refuse..." - Jamaludin
Jamaludin says Axiata is severely undervalued and for that reason and two others, investors should look at it
"No plans to exit (any market) at the moment unless there is an offer too good to refuse..." - Jamaludin

'Our performance speaks for itself'

by Emmanuel Samarathisa

To get an insight on what happened to derail the merger and the future of Axiata, FocusM editor-in-chief P Gunasegaram and senior writer Emmanuel Samarathisa caught up with Axiata CEO Jamaludin Ibrahim at his office in Kuala Lumpur. Surprisingly, the man was all smiles despite going through the wringer.

In this wide-ranging interview, Jamaludin pores over his thoughts on the failed merger talks, his next move, future opportunities for Axiata and why the market should continue to trust him and the group. Excerpts below:

Was there any political interference that led to the collapse of the deal?

No. And I'd like to stress this point that there had been no political interference whatsoever. It's just that both parties found it difficult to cede control unless it's part of a bigger deal.

This is still valuable for us and them. The way we structured the merger, even though it may seem that Telenor has 56.5% while we get 43.5%, if you put that aside, our proposed day-to-day governance is almost equal.

What we wanted was equal management across but in Malaysia better still, and they (Telenor) had agreed to this part, that the majority of the board, the CEO and the chairman will be Malaysians. In that respect, it meets one of the many requirements we have.

But what did you have to lose?

The glaring one is, of course, the consolidation in Malaysia. We could have become a strong company and consolidate instead of duplicating.

We were already working together in the sense that we share sites or fibre. But if it's good, if you combine the company because then we have one network, one distribution, one finance department and so on.

The primary benefit is the network synergy, especially with Celcom-Digi. But because of no merger, I lose the Malaysian consolidation and therefore the network consolidation.

Speaking of mergers, why not merge with TM Bhd? It has a common shareholding and there will be room for synergy.

Well, that is always one possibility. But remember, we were together once. Should we come back together? We may never know.

In the case of Malaysia, are you stuck growth- wise without the merger?

Well, I'm still smiling. We are not stuck in that sense. We are doing well. Maybe it could have been better. But we have to grow, except we won't have the benefit of the consolidation and the scale that we wanted.

What's next for Axiata at group level?

In a way, it's business as usual. We have a concrete plan in place and it's time to execute that plan. Our vision is to become the next digital champion. We have our triple core strategy based on our three pillars: mobile, digital and towers. So our executives are geared towards all that.

The competition

But for an RM39 bil behemoth, how do you plan to steer it? You are going to be inhibited by regulations.

This industry is challenging. We not only have to worry about our traditional competitors such as Digi, Telkomsel (Indonesia), Grameenphone (Bangladesh) and the like. But there are non-traditional ones like WhatsApp and Facebook which are partners yet competitors.

Also there is this complex regulatory environment that we work in. It's tough. It costs money to get spectrum, for example, but then somehow a new tax will come up to surprise us. But we have made it very clear that these are areas we can't control. So we don't spend too much time on that.

Hence, we are focusing on operational excellence. How do I make this company successful? How do I execute this strategy throughout the business? Beyond operational performance, how do I build a stronger portfolio? And we already have a very strong portfolio. The question is how to make it better.

So we can only navigate through areas that are within our control. In many ways we are also very lucky because our company's portfolio compensates for each other whenever times are tough.

Do elaborate on operational excellence.

These are the things we need to do to future-proof the company, meaning the company must be inherently strong in the first place. So operational excellence here means we generate our profits, cash and growth in a purely organic way.

In that respect, there are short-term and long-term targets. Short-term, we are happy where we are today and for the full year we are likely to, maybe, achieve two of the three targets. These are in Ebitda growth and return on invested capital.

In the long run, fortunately all our companies are doing very well with some doing exceptionally well. Subsidiaries like XL in Indonesia are turning the corner nicely. So we think this is possible not only because of our strategy but our execution is like clockwork. We are seeing a nice trajectory beyond next year.

Now, quarter-on-quarter, there are ups and downs. I am concerned but not overly concerned because I am looking at our underlying performance. And the centrepiece of this operational excellence means being extremely efficient in whatever we do, especially by being competitive and efficient.

But as you scale, can you continue to be operationally excellent?

The beauty of operational excellence is that scale is important. The larger you grow, the better off you are. One simple analogy is, say, I want to build a fibre network from Point A to Point B and I can transfer one byte, one gigabyte, one terabyte and one pentabyte where the cost is more or less the same. In other words, this is the kind of business where the larger the volume, the better we are. Size does matter.

Sure, size does matter. But how do you convince the market about that?

You can look at it both ways. If I used my size to increase my price and kill off all my competitors - that is bad.

But I could also use the size to provide better and affordable pricing, innovate new products that benefit the consumer and contribute to more national programmes - a win-win for all. So it depends on how you use or misuse this advantage.

Where does Axiata sit in the National Fiberisation Plan?

Certainly we will be a player. Being one of the largest mobile and telecommunications companies in the country, we will definitely be a major player and contribute to the plan. The combination would be fibre and fixed wireless access.

Do you foresee margins getting squeezed from the government such as the push for cheaper and faster internet?

If you look at our three years of growth to now, our price per gigabyte almost halved, which we have communicated back to the government. In the world of mobile, we are competitive in that there is no requirement to make us provide packages at an affordable price. The market has already forced us to reduce prices. And that's the thing about competition - it forces you to be lean and mean.

How do you manage the expectations from government-linked investment companies? They have a collective 71% shareholding in the company.

It's tough but it can be done. When I say tough, it is not bad or good, it's just tough as there is a focus on dividends. Because the focus of investors like the Employees Provident Fund and Permodalan Nasional Bhd is on the dividends while Khazanah is both dividend and long-term growth. Not that the other investors don't care; they do. But these three are mentioned due to weightage.

The tough part happens because you cannot have both. To invest, I need to put the money back into the business, so that we can grow. But by doing so, I give less dividends. If I give away higher dividends, how do I grow the business? How do I fiberise the network? So that is why it's tough - finding the right balance between the two.

That is why our investor proposition is moderate growth and moderate dividends. We are still growing better than most companies. Our dividends are quite healthy but they are not very high. But that's our proposition.

Will that proposition remain in the next few years?

Yes. We have a lot more investment opportunities. Indonesia is growing big time, Bangla-desh is growing in double digits. We need to put money into them.

Then, we have new businesses like towers, digital and lately we have been going into the home and enterprise segment. So there is a lot of opportunities but because of these, we can't give away all our money to dividends. We need to re-invest them back into the business.

Any markets you are eyeing?

For mobile and digital, nothing imminent or on our radar at the moment. For towers, yes. We are looking for a new set of customers and even new footprints across Southeast Asia and South Asia. We have already expanded into Laos and Pakistan, so we are looking at other countries.

On that note, any exits?

No plans to exit at the moment unless there is an offer too good to refuse, which there aren't too many these days.

Where do you see opportunities now?

The pure mobile industry we know of today is plateauing. Malaysia, for example, is flat but we are quite lucky because we have a good portfolio. Almost every other country we are seeing mid-single digit or high-single digit. So, there's growth left outside Malaysia.

As for non-mobile business, our towers have been growing almost double digits on a year-to-year basis. Digital companies also are growing double digits. For digital, we have three companies: digital financial services (Boost), advertising (ada) and a digital platform (Apigate). All of them are growing by double digits easily.

And then we are venturing into home broadband and enterprise. Those are all double-digit growth. So for the next few years, we are still okay.

Has global economic uncertainties such as the US-China trade war affected your business strategy?

No. Our only worry is Huawei. If Huawei cannot supply us equipment anymore, then we will be extremely worried. Huawei makes up 60% of our supply. But so far, it's okay. We are not affected.

Any plans to wean off that heavy reliance on Huawei?

Yes and no. There are not that many vendors anymore. The days when we have a whole list of vendors are gone. Now we have around five major players to choose from. There are newer ones like Samsung that are entering the market but there are also new disruptors.

These new players have a different kind of algorithm and technology that provides similar, but not exactly like the traditional operators.

But in the long-term we can (wean off) but in the short-term we can't. And frankly, there is no reason for us to not go with Huawei at all.

Speaking of these disruptors, do you plan to bring them into the Axiata fold?

Yes, we are looking at them but these are still very early days. What we have is call for a request for information (RFI) to look at these new disruptors in the equipment world. But these are very early stages and we have just completed an RFI, not even RFP (request for proposal).

Building three unicorns

What is your vision for Axiata?

How to build this company, a telco which is mobile-centric today, and for the most part still be mobile-centric, into a next-generation digital company. I know it's quite a mouthful and quite vague but we can define it this way:

Firstly, there is triple core or three pillars. For mobile, how do you transform that business into a converged company, meaning providing fixed wireless or fibre across the board.

For digital, how do we evolve the three companies into three unicorns. That's our objective. It's a bit farfetched. But today, the three of them combined is already US$500 mil. Maybe we can't make three unicorns, but we can have one unicorn combined. It's still not bad.

For towers, it's about becoming the fifth largest global player. Underlying the triple core is running a digital company from A to Z. So how do we serve customers more digitally? We have experimented, as an example, with a product where you as a consumer don't have to buy any package. You can customise whatever you like. The generic name for this product is Slider. But at the core is you deciding what package you want. Currently, we have 60,000 customers using this product.

Another aspect of becoming more digital is the external interface. This means how do you reduce face-to-face contact. We already are doing this where you can register, change address or billing information electronically. So, how do we step up?

Internally, we are looking to digitise our HR and financial processes, among others. We are also looking to modernise our infrastructure.

Lastly, the people themselves. We subscribe to MAD - a modern, agile and digital culture.

Finally, given all that has happened, why should the market continue to trust in you and Axiata?

Look at our performance. Sure, we were slightly wrong in our calculations when I said on Aug 29 that we were optimistic. But our performance speaks for itself.

Even if that is not good enough, look at our strategy. Our short-term and long-term trajectory looks pretty good because all our OpCos are doing well. Maybe they are not doing well quarter-on-quarter but if you look at the trajectory, it is shaping up to be very nice.

Most investors look at Malaysia and Indonesia. For Indonesia, it is turning the corner very well. For eight quarters in a row, it is the best performer in the market. Malaysia, we have had a great performance too, coming off the back of two disastrous years. But we stabilised under the previous CEO and we are going back up again.

The other point is that we are undervalued. If we look at our three digital companies, Mitsui gave us a valuation of US$500 mil. Edotco the tower arm, if we sell tomorrow, our value is a lot more than what our investors have given us. Axiata-Celcom, we are given a multiple of 6x whereas our peers are in the range of 12-13x. So we are severely undervalued.

This is the point I want to make. We are severely undervalued. There is a lot more upside valuation, to put it the other way round.

So for these reasons, they should look at us.