KUALA LUMPUR (Aug 11): Moody's Investors Service expects no revenue growth for Axiata Group Bhd for the financial year ending Dec 31, 2020 (FY20), followed by top-line growth of 2.0% to 2.5% over FY21-FY22

This growth will be supported by the steady performance of XL Axiata Tbk (PT) in Indonesia, as well as continued solid growth at Robi Axiata Ltd in Bangladesh, Ncell in Nepal and Dialog Axiata PLC in Sri Lanka, said Moody’s in a statement today, in which it affirmed Axiata's Baa2 issuer rating.

In announcing its FY20 headline key performance indicator (KPI) targets in February, Axiata had aimed for 3.5% to 4.5% revenue growth for the year, and earnings before interest, taxes, depreciation and amortisation (EBITDA) growth of 4% to 5.5%.

However, in May, Axiata withdrew the headline KPI guidelines, citing business uncertainties arising from the Covid-19 pandemic. This came as it suffered a 74% drop in 1QFY20 net profit to RM188.11 million, from RM725.17 million a year earlier, as revenue grew by just 1.46% to RM6.04 billion, from RM5.95 billion.

In its statement today, Moody’s said it has also affirmed the Baa2 senior unsecured rating on Axiata’s existing US$500 million sukuk notes and the provisional (P)Baa2 senior unsecured rating to the sukuk issuance programme established by wholly-owned Axiata SPV2 Bhd.

At the same time, the rating agency has assigned a Baa2 rating to the proposed US$500 million drawdown under Axiata SPV2 Bhd's sukuk issuance programme.

Moody’s said the ratings have a stable outlook, reflecting its expectation that Axiata will maintain its solid operating and financial profile, given the increasing dividend contributions from its international subsidiaries, and relatively stable cash flows from Celcom over the medium term..

Moody’s said the Baa2 ratings continue to incorporate the extraordinary support that the agency believes the Malaysian government is likely to provide in a situation of distress, which results in a one-notch uplift from its baseline credit assessment of baa3.

Nidhi Dhruv, Moody's vice president and senior analyst, said the affirmation of Axiata's ratings reflects the group’s diversified revenue sources and the strong market positions of its key subsidiaries.

“This, coupled with management's financial discipline, will keep Axiata's leverage at around 2.5x. However, free cash flows will remain strained over the next one to two years, driven by a commitment to shareholder returns and elevated capex levels," she said.  

Dhruv added: "Diversification of cash flows on the back of continued growth in emerging markets, coupled with increasing contractual revenues from edotco, its regional tower company, will help offset the weaker operating performance of Celcom, amid intense competition in Malaysia."

While price competition and higher customer acquisition costs in certain geographies will pressure Axiata's margins, Moody's expects the group to maintain adjusted Ebitda margins of over 40%.

Axiata’s share price fell seven sen or 2.19% to RM3.12 today, valuing the group at RM28.61 billion.

(This report has been updated as at 10:32pm)