KUALA LUMPUR: A potential re-merger between Axiata Group and Telekom Malaysia could reduce the valuation differential with Axiata's peers, says AmInvestment Research.
The research firm has maintained its Buy call on Axiata with unchanged forecasts and a sum-of-parts-based fair value of RM6.30 a share.
Axiata has been approved as one of the five participants in Indonesia's 2300MHz spectrum auction. The Indonesian government is auctioning 2 x 5mHz blocks of 2100MHz at the reserved price of IDR297bil and 30MHz block of 2300MHz at IDR367bil.
AmInvestment Research notes that while XL Axiata has no need for additional 2100MHz spectrum, it has indicated interest in the 2300MHz band for the "right" price.
Assuming a 20-year amortization charge and a final successful bid price which is 20% above the reserve price, we estimate a mild impact from a successful bid for the 2300MHz band, as XL’s FY18F-FY19 earnings may be lowered by 1%-2% while its FY18F net debt/EBITDA may slightly rise to 1.44x from 1.39x given its relatively high net debt of RM12.6tril currently," it said.
In Q2FY17, XL's service momentum rose 9% q-o-q, supporting overall growth of 8%. This was driven by a 2.5 million increase in subscriber base to 50.5 million and IDR2,000/month increase in blended ARPU to IDR35,000/month, says AmInvestment Research.
"We view Axiata’s struggles in regaining forward momentum in subscribers and ARPUs in Malaysia and regionally as underpinning the need for the group’s re-merger catalyst with TM.
"Axiata currently trades at a bargain FY17F EV/EBITDA of 7x, way below its 2-year average of 8.1x, vs. SingTel’s 14x," it said.
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