KUALA LUMPUR (Dec 7): The structural transformation of Axiata Group Bhd’s Indonesian subsidiaries XL Axiata and Link Net to become ServeCo and FibreCo leaders may require substantial funding, which Axiata may seek from potential investors in future to fund the growth plans, said Kenanga Research.

In a research note on Thursday, the research house said that Link Net, which operates under the FibreCo platform, aims to deploy four million new home passes by 2026, in addition to the existing 3.4 million. However, this plan requires substantial capital expenditure (capex), estimated at US$500 million (RM2.34 billion) to US$600 million at its peak in 2026.

Kenanga Research reported feeling largely neutral about this ambitious growth plan, as it is counterbalanced by high funding requirements, for which Axiata needs to rope in investors in the future.

According to Kenanga Research, Axiata, which owns 79.5% of Link Net, has put a target to reduce the capex intensity of its digital telco operations to below 20% by 2025 (currently 25%) to optimise asset returns, and achieve its aspiration to be a company with sustainable dividends.

"In contrast, based on current traction, Axiata has forecast that its mobile network capex would exceed 20% by 2026. As such, instead of growing network capex rapidly in the coming years, Axiata plans to keep it flat," Kenanga Research said.

Amid this, the research house still maintained its "outperform" call on Axiata, with a target price of RM3.10, based on sum-of-parts valuation.

“We continue to like Axiata for: i) its plans to deleverage and strengthen its balance sheet; ii) growth prospects for OpCos in emerging markets; and iii) strong asset monetisation prospects for Edotco and its digital businesses,” Kenanga Research said.

To recap, Axiata recently announced its strategy to transform Link Net from a retail broadband provider to a wholesale fibre infrastructure player that provides open access to other internet service providers, including its sister company XL Axiata.

XL Axiata, which operates under the ServeCo platform, will offer fixed-mobile converged offerings to its customers using Link Net’s fibre network.

Axiata said this structural transformation will enable Link Net to capture growth opportunities in Indonesia, where fixed broadband penetration is only 15%, compared with 48% in Malaysia. The largest fixed player in Indonesia, Telkom, has 37 million home passes, while Link Net is the second largest with 3.4 million passes.

At the time of writing on Thursday, Axiata Group shares had slipped one sen or 0.42% to RM2.36 each, valuing the group at RM21.57 billion.

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Axiata to transform Indonesian subsidiaries into leading ServeCo and FibreCo