KUALA LUMPUR: Axiata Group Bhd’s share price surged to its highest in four months yesterday on active trade as investors saw its first quarter (1Q) performance as well as some recent regional developments as signs that the worst could be over for the regional telecommunications provider.

“A number of major geo-political events, including the positive outcome from the Indian elections, cessation of the civil war in Sri Lanka and an improved outlook for the Indonesian economy, should all have a positive impact on the risk profile, earnings and outlook for Axiata,” Macquarie Research said in a note yesterday.

Axiata added as much as 16 sen to RM2.48 before closing higher for a fourth straight day at RM2.46, up 14 sen or 6% from Tuesday. Axiata had gained 11 sen ahead of the release of its results on Tuesday, and is 38.4% higher than the RM1.77-level on March 24 when Axiata announced plans to make a RM5.25 billion cash call.

“Axiata is likely to also benefit from improved foreign exchange (forex) outlooks in these countries,” Macquarie said when raising its target price from RM1.79 to RM2.15 (a 16% discount to its sum-of-parts valuation of RM2.54).

It remains neutral on Axiata but no longer think it should trade at a 20% discount to its peer, Singapore Telecommunications Ltd.

Macquarie were among brokerage houses which upgraded their recommendation and/or price targets yesterday after Axiata’s 1Q09 revenue jumped 18.6% quarter-on-quarter, while net profit rebounded to RM63.9 million from a RM515.25 million net loss in 4Q08, despite not being able to book its share of profits (about RM30 million) from India’s Idea Cellular Ltd until at least 3Q09, pending court approval — the last leg in the merger exercise with Spice Communications Ltd.

OSK Research upped its call to buy from take profit and raised valuations to RM2.70 from RM1.73.

ECM Libra Research upgraded its call to buy with a RM3.12 target price from RM1.77 before. Half of the 12 analysts who updated their calls yesterday were neutral on Axiata and the remaining half is split equally between buy and sell. Target prices range between RM2 and RM3.12.

Axiata was the seventh most actively traded counters and the only one on the top 10 active list trading above RM1 apiece.

At its first AGM yesterday, Axiata group CEO Datuk Seri Jamaludin Ibrahim told shareholders that “underlying trends (at its foreign operations) are good” and contributions would “definitely” exceed that of Celcom (M) Bhd’s within four to five years, although a lot of work still needed to be done. Celcom now contributes over half of Axiata’s revenue and earnings.

Jamaludin expected investors’ concerns on the balance sheets of Indonesia’s PT Excelcomindo Pratama’s (XL) and Sri Lanka’s Dialog Telekom “to be resolved by 2H09”.

Speaking to reporters later, he said Dialog would “refocus” on its mobile business this year, with “very little” spending on its other businesses.

Dialog is exploring options for its pay-TV business, including the possibility of bringing in a strategic partner. The re-opening of part of its network in the north and east of Sri Lanka that was recently shut down due to the militant resurgence would give Dialog access to an additional two million users, he added.

Axiata group chief financial officer Datuk Yusof Annuar Yaacob said the exact structure of XL’s capital improvement plan — be it a rights issue or the restructuring of debt — would be decided “by June”.

XL reportedly needs to make a cash call of between US$300 million (RM1.07 billion) and US$600 million this year, but Yusof said the company was still “OK” even if they decided to stick to just borrowings.

He earlier told shareholders Axiata expected Idea’s merger to “come through sometime September” this year, but did not expect it to be a big earnings contributor to the group for FY09. This is given expectations that it would only be able to equity account its portion of Idea’s earnings for just over three out of 12 months this year, assuming the merger is completed in September.

Axiata, which intends to pay up to 30% of net profits as dividends, would be in the position to do so in 2010, when the group was free cash flow positive, Yusof added.

On the impact of currency fluctuation, Yusof said 80% of the forex losses were mere translation or paper losses while 20% were realised as equipment costs and interest on its debt facilities rose due to the weakening of the ringgit against the US dollar.