Axiata is one of the largest companies by market capitalisation on Bursa Malaysia

Axiata's game plan going forward

Malaysia's largest wireless carrier has a concrete plan in the event there is no merger.Now it's time to execute that plan, says its president and group CEO

It is looking at creating three unicorns

by Emmanuel Samarathisa

When Axiata Group Bhd announced that it was working on a merger (MergedCo) with a chunk of the Asian operations of Norway's Telenor ASA, the market reverberated. Proponents touted this as a catalyst of sorts while detractors raised the spectre of anti-competitiveness. There was also a political spin with fears of losing a government-linked company in the case of Axiata.

If realised, the MergedCo would have seen a consolidation of Axiata's Celcom Axiata Bhd and listed Digi.com Bhd, of which Telenor is the largest shareholder with 49% equity interest. The two combined would see MergedCo commanding about 35% of the mobile space in Malaysia.

Reach wise, MergedCo would have had operations stretching across nine countries, serving an estimated customer base of 300 million out of a population of one billion. As for control of the company, Telenor would hold a 56.5% stake while Axiata would have 43.5%.

But all talks, rumours and expectations came to naught when both sides called off the deal on Sept 6. The abrupt announcement came after Axiata president and group chief executive officer Tan Sri Jamaludin Ibrahim sent a positive message on Aug 29 that the deal could be realised, brushing aside reports that trouble was brewing on the horizon for MergedCo.

Earlier in June, Telenor also insisted that the merger had to have a Malaysian flavour and without it, the deal in its current scope would be off.

But after the deal collapsed, the market reacted aggressively. On Sept 10, a combined RM9.28 bil market capitalisation were wiped off from both Axiata and Digi; the latter taking a softer blow. The good news is, both counters have been steadily crawling upwards ever since.

That day, 14 analysts issued "hold" calls for Axiata, according to Bloomberg data. Four had placed "buy" calls and eight "sell" calls. Axiata's 12-month consensus target price (TP) is RM4.73. Digi, on the other hand, had 19 "hold" calls and four "sell" calls with a TP of RM4.65.

Clearing the air

Jamaludin notes that ever since he signed the memorandum of understanding with Telenor in May, merger talks had been challenging. "There had been a lot of ups and downs as there were so many things to consider," he tells FocusM .

He points out three hurdles: the complex nature of the MergedCo itself, the sheer size of the deal which would register a pro-forma revenue of RM50 bil, and maintaining Axiata's national interests, making this "not just a commercial deal."

When news broke out of the failed merger, Jamaludin told analysts that "this has come as a surprise for most of you, and for us too, actually." He clarifies that the "surprise" was not on that day per se but as a result of a week-long negotiation between Axiata and Telenor.

"The whole week we were working on and discussing open items. Some of these were big, others small. And when we looked at these issues together (with Telenor), I said I don't think we can close this deal.

"We met twice. There had been plenty of phone calls and two board meetings during that week itself to discuss the open items. But by Friday morning, we agreed that we couldn't close the deal.

"So this happened not on a particular day or over a particular incident. But over a period of a week. Both sides agreed to end discussions and this was done amicably," he says.

Man with a plan

But all is not lost, Jamaludin assures. "We have a concrete plan in the event there is no merger. Now it's time to execute that plan. Also the beauty of our deal is that if it collapsed, we wouldn't be in bad shape. Going to the merger, both of us were performing very well."

Jamaludin has a three-prong strategy. First, he is looking to tap into growth in the mobile space in countries outside Malaysia where Axiata already has a footprint such as in Indonesia and Bangladesh.

Secondly, he wants to create three unicorns (a unicorn is a tech start-up which reaches a value of US$1 bil) parked under Axiata's digital business. These three unicorn hopefuls are digital financial services Boost, digital advertising company ada, and digital platform Apigate.

Thirdly, he is scouting for new areas to enlarge Axiata's tower business edotco. This means looking at newer areas in Southeast Asia and South Asia and edotco is expected to contribute to Axiata's bottomline.

The question is: Can Jamaludin pick up the pieces and move on? "Yes, he has always been level-headed, even when I covered him during his tenure as Maxis CEO. Seems to have a good head on his shoulders and a steady pair of hands," says an analyst covering Axiata.

Indeed, Jamaludin is familiar with tough times. When he led Maxis, he had to weather the Asian financial crisis of 1997-98. At Axiata, he had to stave off fierce competition in India when Jio disrupted the market in 2016.

Jamaludin's pitch post-failed merger is for investors to look to Axiata as it is "severely" undervalued. "That is the point I want to make. There is a lot more upside valuation, to put it the other way round," he says.

He notes the group is also focusing on operational excellence which means generating "profits, cash and growth in a purely organic way."

Indeed, it seems that some confidence is returning. Axiata's share price rose from RM4.11 on Sept 10 to RM4.30 on Sept 18. It has yet to reach the RM4.88 level it enjoyed on Sept 6. As of Sept 17, the group managed to outperform the benchmark FBM KLCI to gain 7.4% year-to-date as opposed to a drop of 5.3% for the index. Axiata is also slated to register a RM1.2 bil net income for financial year 2019.

For more details on Jamaludin's plan, see the accompanying Q&A. FocusM