Axiata Group – Talking down its dividends (CIMB)

In an interview with The Edge, Axiata’s CEO ruled out a special dividend and reiterated that it will progressively raise its dividend payout. We think that Axiata will quickly raise its payout ratio above FY10’s 33% given its very strong FCFE. Axiata’s CEO also thinks that the company will add one or two countries to its portfolio by 2015. However, we think that it depends on the pace of liberalisation. Group capex is likely to be raised, which we believe arises from the 20% rise in XL Axiata’s capex to cater for the surge in data volumes.

We continue to rate Axiata a BUY with an unchanged SOP-based target price of RM6.20. It is shaping up nicely as a good capital management story given its rapidly falling net debt/EBITDA. A likely catalyst is substantially higher dividend payouts.