Axiata Group Bhd saw some selling pressure in early morning trade on news that it had been hit with a capital gains tax bill of RM2.16bil by the Nepalese Supreme Court. The stock lost as much as 20 sen or 5.1% in early morning trading on Friday to a low of RM3.70. At 9.30am, the counter was down 14 sen or 3.59% to RM3.76 a share on the back of 1.57 million shares traded.
Analysts said the news report by the Himalayan Times yesterday came as a negative surprise, which may impact the group’s FY19E earnings forecasts.
Kenanga research made no changes to its FY18-19E earnings forecast pending its upcoming 4Q18 results but lowered its target price to RM4.50 from RM4.60 previously.
“All in, we are keeping our Outperform call for now in view of its relatively decent valuation (Forward EV/EBITDA of 7.2x vs. peers of 12-13x) coupled with a stronger Celcom and earnings recovery at XL.
“Bargain-hunting opportunity could potentially arise on any share price weakness due to the recent hiccup. We advocate investors to start accumulating the share at c.RM3.70 level,” it said.
PublicInvest research said its core earnings forecasts remain unchanged but headline profit could see a sharp decline if Axiata paid the capital gains tax in FY19F.
“Although our core earnings forecasts and Neutral call remain unchanged, we believe share price would react negatively to this news due to uncertainties and the potential downside to headline profit,” it said.
It maintained its target price at RM3.85.
In its response to news reports, Axiata said in a statement that it is yet to receive the judgment and order of the Supreme Court and is yet to receive any details of the order.
“Ncell, Reynolds, and Axiata UK were given the full clearance by the Large Tax Payers Office of Nepal [LTPO] of its obligations to withhold any CGT payment on behalf of the Seller in relation to the Transaction via the letter from LTPO dated 4 June 2017, following the full and final payment made by Ncell, albeit under protest on the basis that CGT is not applicable on offshore transactions and even if applicable, any shortfall on payment is the responsibility of the Seller,” it said.
The group said it would provide further updates upon receiving the order of the Supreme Court.