M1's largest shareholders, which also include Malaysia's Axiata(pic) Group, had considered but eventually called off a strategic review of their holdings in the telecommunication provider last year, saying parties interested in buying those stakes did not meet certain criteria.
KUALA LUMPUR: CIMB Equities Research expects Axiata Group Bhd
’s Q4 FY18 core earnings per share (EPS) to be higher after it ceases the equity accounting for Idea and an improvement in XL’s earnings.
The research house had on Thursday retained the target price of RM4.40 ahead of the release of the financial results on Feb 22.
“We estimate core EPS rose 20-30% on-quarter (up 40-50% on-year), mainly due to: a) cessation of equity accounting for Idea (Q318: - RM81m) from Aug 16, 2018, and b) improvement in XL’s earnings on-quarter to near breakeven (3Q18: c.-RM30mil) on higher revenue and EBITDA margins.
“Celcom’s earnings were likely flat on-quarter as stronger EBITDA was offset by increased depreciation. Based on its announced results, M1’s earnings contribution eased 26% on-quarter (-RM8mil). Ncell and Smart earnings were likely flat/slightly lower on-quarter due to seasonality and regulatory charges,” it said.
CIMB Research believes Axiata’s 4Q18 headline EPS was hit by significant asset impairments at XL, Celcom, Robi and Ncell, mainly for 2G network assets and billing support systems.
These are non-cash charges and should not impact dividend per share, which is based on normalised EPS. While the headline EPS may look weak, the flip side of the coin is that EPS in FY19F and future years would be boosted by lower depreciation on a smaller asset base.
On Feb 11, it was reported Nepal’s Large Taxpayers’ Office (LTO) stated Ncell/Axiata are liable to pay capital gains tax of 75bil Nepali rupees on the Ncell acquisition (completed in April2016), including late payment fees.
As NCell had already paid 23.6bil Nepali rupees previously, the net amount is NPR51.4bn (RM1.84bil).
“This is a negative surprise as Axiata said it was fully cleared by the LTO of CGT following a payment made in June 2017. Currently, Axiata has not received the judgment/order of the Supreme Court. If it has to pay, this will reduce our current RM4.40 target price by 20 sen (4.7%),” the research house said.
CIMB Research also said that on Jan 22, Keppel-SPH announced that it will not increase its S$2.06 voluntary general offer (VGO) price for Aixata’s stake in Singapore’s M1 under any circumstances and extended the closing date to Feb 18.
“Unless it is able to find a partner to fund a counterbid, we think Axiata is likely to accept the offer as M1 is a non-core asset. If Axiata keeps its stake, there is a potential five sen downside to our sum-of-parts based target price of RM4.40 as we revert back to a discounted cashflow-based valuation for M1 (i.e. S$1.50/share).
The research house pointed out the capital gains tax issue in Nepal is certainly negative news but now priced in after a 3.2% drop in share price.
“On better earnings at Celcom, XL and Robi (coupled with nil share of Idea’s losses), we see Axiata's FY19/20F core EPS (FY18F: -17.2%) growing 50.2%/14.5% on-year, a key re-rating catalyst,” it said.
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