Notes

‘Hold’ call on Axiata, 'overweight' on Scomi Energy

Axiata Group BHD
By AllianceDBS Research
Hold - Target price: RM7.20

AXIATA Group Bhd’s 66%-owned Indonesian-listed subsidiary, XL Axiata (has entered into an agreement with PT Solusi Tunas PratamaTbk (STP) for the sale of its 3,500 towers for about RM1.5bil cash, said AllianceDBS Research.

It said XL would lease back these towers for 10 million rupiah per month per tower, fixed for 10 years including operations and maintenance costs. This deal is expected to be completed by end-2014.

AllianceDBS noted that XL would use the proceeds to pare down debt, which it thought was likely to be external borrowings rather than shareholder loan from Axiata. It added there would be no incremental cashflow to Axiata at the holding company level.

It said Axiata did not have immediate funding needs as its current cash position at the holding company level and cashflow from Celcom remained sufficient to meet its dividend commitments. The additional tower lease fee would be partly offset by the interest cost savings and lower depreciation expense.

On a consolidated basis, the research house said this led to a small cut in its financial year 2015 forecast and FY16F earnings of 2.4% and 0.4% respectively. It said potential re-rating catalysts for Axiata include the listing of its tower assets via E.co as well as speedier integration of Axis by XL.

Scomi Energy Services BHD
By Hong Leong Investment Bank
Overweight - Target price: RM1.23

ACCORDING to Hong Leong Investment Bank (HLIB), Scomi Energy Services Bhd (SES) is actively expanding its team on integrated project management, by building up its integrated capability that includes drilling management, sub surface, production, facilities management and operation and maintenance.

It said SES could handle projects from marginal, brownfield and enhanced oil recovery which presented enormous opportunity. The potential markets are Malaysia, Indonesia and Myanmar.

It was confident that SES would secure more risk-sharing contracts and venture into brownfield or enhanced oil recovery businesses in the near future.

On SES’s Ophir marginal field, it said the company mobilizing works were on track with drilling expected to start in mid-2015 and scheduled to hit oil by end-2015.

HLIB said SES’ first quarter financial year 2015 (FY15) results report noted that drilling activities in Malaysia had picking up with rig counts increased from four rigs in June 14 to six rigs in Sept 14 and were expected to hit 12 rigs by end of financial year 2015 (FY15).

HLIB saw multiple growth catalysts in SES due to potential expanding order book from RM5.5bil to RM7bil. It saw potential upside risks to its earnings forecast at a three-year compound annual growth rate of 50% with price-earnings ratio to fall to only seven times in calendar year 2016.