KUALA LUMPUR: AmInvestment Research expects Norwegian telco Telenor Group, which maintains a 49% stake in Digi.com, to have a majority stake in the merger of the Asian operations with Axiata Group Bhd.
The research house said on Monday the expectations of Telenor having a majority stake in the merged entities was because of its larger EBITDA and earnings base.
“Overall, we would be positive if this deal materialises as this could reduce the number of competitors, effectively enabling the merged entities to leapfrog to top positions in terms of market share in countries which are involved in the merger,” it said in a research note.
“We also expect significant synergies and economies of scale given the elimination of resource duplication and operational redundancies,” it said.
Digi and Axiata announced the securities were suspended from 9am to 5pm pending the release of a material announcement.
Axiata said it will be holding a press briefing at 4pm today where its president and group CEO Tan Sri Jamaludin Ibrahim will make a "significant announcement".
AmInvest Research quoted the report as saying Axiata and Telenor had appointed foreign investment banks to advise on the merger of their operations in Asia, excluding Axiata’s operations in India and Nepal.
Both companies have operations in Malaysia, Thailand, Myanmar, Bangladesh and Pakistan. In countries where Telenor does not have a presence, Axiata also operates in India, Sri Lanka, Nepal, Cambodia and Indonesia.
“The report indicates that the group’s 80% stake in Nepal-based NCell is not being discussed probably due to the baffling NPR39bil (RM1.5bil) capital gains tax that the group is required to pay for the profit earned by TeliaSonera Norway Nepal Holdings from its sale to Axiata in December 2015.
“Also, Telenor does not seem to be interested in the group’s 8% stake in India-based Vodafone Idea, which is still loss making at this stage due to the intense competition from Reliance Jio,” the research house said.
AmInvest Research said based on FY18 results, it estimated that Axiata’s operations, which could be involved in this merger, could reach RM23.8bil in revenue, RM8.5bil in EBITDA and RM1.2bil in normalised profit.
Likewise in Asia, Telenor’s FY18 revenue was RM28bil, EBITDA RM13bil and net profit RM5bil.
“Additionally, with Telenor’s proven track record and joint management role, we expect Axiata’s discount to its SOP to be narrowed given the reduced exposure to overseas assets which bear higher risk.
“Nevertheless, such an extensive restructuring exercise could be hindered by each country’s regulatory oversight, bearing in mind the strategic security and telecommunication issues which will be raised.
“While pending further clarity from an analyst briefing later today, Axiata currently trades at a bargain FY19F EV/EBITDA of 5x vs. Maxis’ 13x, amid intense mobile competition both locally and regionally could limit any medium-term share price upside.
“Additionally, the government’s intention to reduce Khazanah Nasional’s holdings in GLC-linked companies currently casts shadows of a share overhang,” AmInvest Research pointed out.
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