PETALING JAYA: Axiata Group Bhd’s Indonesian results came in below expectations in the first quarter of this year, but the group’s regional exposure and focus on emerging countries may deliver better growth potential.

       The impending completion of the Celcom Axiata Bhd and Digi.com Bhd merger is also positive for the group as it will allow Axiata to unlock value.

       However, the ongoing economic risks of Axiata’s Sri Lankan operations via Dialog in that country and regulatory issues in Nepal are major concerns for the group.

       In its latest report, Kenanga Research has an “outperform’’ call on the stock for its digital and regional exposure, which will partially benefit from the easing competitive landscape in Indonesia.

       HLIB Research, meannwhile, said it is positive about the Celcom-Digi merger.

       There are other potential corporate exercises that may also unlock value including its tower asset and digital businesses listings.

       Kenanga Research noted that XL Axiata’s first quarter financial year 2022 (1Q22) core net profit was down even though its top line saw an 8% increase driven by an improvement in both its prepaid subscribers and average revenue per user.

       However, its earnings were dragged by higher expenses.

       Looking ahead, the research house expected XL to continue pushing its convergence proposition to drive subscriber-growth.

       The competitive landscape in Indonesia is gradually easing, reducing the risk of further price wars, according to the research house.

       It has reduced its target price slightly lower to RM4.25 a share from RM4.30 a share.

       It also ascribed a lower enterprise value for XL.

       It said the digital lifestyle formed during the pandemic is expected to create structural demand for data with increased demand for fibre to the home services due to the higher consumption patterns and the market is underpenetrated.

       The research house pointed out that the first quarter is historically a soft quarter for XL Axiata. However, inflationary pressures may erode the purchasing power of consumers.

       HLIB Research added that the amalgamation with Linknet by XL is to realise the vision of it becoming Indonesia’s top converged telecommunication company.