The Three Numbers That Connect Axiata Group Berhad

In terms of size, Axiata Group Berhad (KLSE: AXIATA; 6888.KL) is larger than Singapore’s StarHub (SGX: CC3) but much smaller than Singapore Telecoms (SGX: Z74). But Malaysia’s telecom operator with 275 million subscribers in nine countries can more than hold its own in generating a good return on shareholder funds.

Axiata’s Return on Equity (RoE) has been in the low single digits over the last four years. Last year, it delivered a RoE of 10.6%. That implies that the telecom company, which owns over a quarter of M1 Limited (SGX: B2F), generated a profit of MYR10.60 on every MYR100 invested in the business.

Axiata’s above-average RoE can be traced to its Net Income Margin of 12.9%. That is more than double the margin of 5.9% for Telekom Malaysia Berhad (KLSE: TM; 4863.KL). It also means that Axiata delivered a bottom-line profit of MYR12.90 on every MYR100 rung up in its tills.

Axiata is less efficient than its peers, though. It only generated MYR37.80 on every MYR100 of assets at its disposal. By comparison, Singtel generated S$42.30 on every S$100 employed and StarHub generated S$125.50 on every S$100 of asset used.

Axiata also makes use of leverage. It has Total Liabilities of MYR30.4 billion, of which about half was made up of long-term debt. It had Total Assets of MYR56.1 billion, which equates to a Leverage Ratio of 2.18.

By dismantling Axiata’s Return on Equity, it is easy to how the various components are connected. Its RoE of 10.6% is the product of a strong Net Income Margin of 12.8%; a respectable Asset Turnover of 0.38 and a dollop of Leverage Ratio of 2.18.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.