KUALA LUMPUR: AmInvestment Research is maintaining its Buy call on Axiata Group with unchanged forecasts and sum-of-parts-based fair value of RM6.30 a share.
It said on Wednesday this was based on expectations of a value-enhancing remerger with Telekom Malaysia which could reduce the valuation differential with its peers.
The research house said Nepal’s central bank, Nepal Rastra Bank has barred Axiata’s 80%-owned NCELL from repatriating its dividend until the full recovery of capital gains tax (CGT) related to the US$1.4bil sale by TeliaSonera has been settled.
“As per the country’s income tax law, of the 25% applicable CGT in any major deal, it is the responsibility of the acquiring company to directly pay 15% to the government as tax deducted at source while the remaining 10% is to be filed by the selling company.
“Axiata has so far filed 23.6bil Nepali rupees in two phases as CGT and has announced that it has cleared all its tax liabilities,” it said.
Although TeliaSonera is accountable for the remaining 10% of CGT, it has claimed in a response to the letter from the Large Tax Payers’ Office that it has met all the tax requirements while operating NCELL between 2008 and 2016.
Also, as Norway has a double tax arrangement with Nepal, TeliaSonera claims that Nepal has effectively waived its right to tax the sale of shares owned by a Norwegian entity.
However, in line with the request of the tax administration to hold TeliaSonera accountable for its share of CGT, the central bank said no Nepali company or person can transfer funds to firms associated with TeliaSonera.
This includes Renold Holdings Ltd, St Kitts and Nevis, TeliaSonera UTA, the Netherlands, TeliaSonera Asia Holding, Norway, TeliaSonera Norway Nepal Holding and SEA Telecom Investment BB, the Netherlands.
Recall that last month, Axiata claimed to have fully settled its Nepali CGT liability with a final disbursement of NPR13.6bil (US$133mil) following the earlier payment of 9.9bil Nepali rupees (US$94mil). Of the total US$227mil CGT paid so far, US$157mil has already been provided for and added to Axiata’s goodwill on acquisition for Celcom in FY16.
“If Axiata again has to bear TeliaSonera’s 10% CGT liability, we estimate that this translates to US$151mil. Together with the outstanding 15% unpaid CGT of US$70mil (RM301mil), this works out to 82% of the group’s FY17F earnings and raises Axiata’s FY17F net debt/EBITDA from 1.7 times to 1.8 times,” it said.
“This could be offset against the group’s shareholders’ funds or added to goodwill. If the auditors agree to the goodwill addition, there may be no impact to Axiata’s earnings as goodwill will only be impaired if a permanent diminution in value materialises.
“We view these overseas regulatory challenges together with struggles to regain forward momentum in subscribers and ARPUs increasingly highlight the need for the group’s remerger catalyst with TM.
“Axiata currently trades at a bargain FY17F EV/EBITDA of six times, way below its two-year average of 8.1 times vs SingTel’s 14 times,” it said.
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