Several research houses have called a “buy” on Axiata and revised their 12-month target price to RM5 and above. The same goes for Digi.
Yesterday Axiata shares added 60 sen before closing at RM4.64 a share. Its market capitalisation rose by RM5.4bil to RM42.12bil.
Digi, on the other hand, added 28 sen to close at RM4.80 a share. Its market capitalisation rose by RM2.17bil to RM37.32bil.
Axiata was the biggest gainer on the stock market yesterday and several research houses are positive on the impending merger.
On Monday, Axiata and Norwegian Telenor ASA announced a proposal to merge their operations in nine markets across Asean and South Asia. This will inevitably create a mega-telecoms company, which both the parties term as a “global champion”. They based it on the size and scale that the merger would create.
The non-cash deal will involve a share swap and the creation of a new merged company for all the assets. In this, Telenor will hold a 56.5% stake and Axiata, 43.5%. As it is, Telenor has a 49% stake in Digi and Axiata holds the entire stake in Celcom Axiata Bhd.
Celcom and Digi will also be merged.
CIMB Investment Bank said based on its understanding, the plan is to keep the listing status of Digi, which suggests that the new company would seek a mandatory general offer waiver from the relevant regulatory authorities.
Post-merger, DigiCelcom would be the largest mobile operator in Malaysia with an estimated proforma revenue market share of 54% in 2018, overtaking Maxis Bhd (34%), CIMB said.
UOBKayHian said it was positive with the unlocking of assets by Axiata.
“We have upgraded Axiata from a ‘hold’ to a ‘buy’ with a sum of the parts (SOTP)-based target price of RM5.00. In arriving at our target price, we have eliminated the 15% discount to our SOTP, as we see the merger as an attractive monetisation exercise for Axiata. In addition, we have previously highlighted that our SOTP is derived from a depressed five times EV/EBITDA (earnings before interest, taxes, depreciation and amortisation) valuation for unlisted overseas opcos. As such, we raise our EV/EBITDA valuation for unlisted opcos to six times,’’ it said.
“A strong partner like Telenor is a key re-rating catalyst for Axiata, as Telenor’s hands-on approach, good cost discipline and future-proof strategies would help drive further value-creation for the new merged company. At our target price, Axiata would trade at close to its five-year mean EV/EBITDA of seven times,’’ UOBKayHian said.
MIDF Research added that since the telecoms industry was highly competitive, having a sizeable presence would provide the group with certain competitive advantages such as economies of scale and better negotiation power in terms of equipment procurement, especially in the case of its Malaysian operations.
“It also provides the group with a stronger balance sheet to execute its future expansion plans, as the industry is capital-intensive. Nonetheless, the move might trigger regulatory risk, in the case of Malaysia, as well as higher exposure to forex translation risk,’’ MIDF said.
It added that Axiata has to iron out issues surrounding Ncell (Nepal), which could potentially affect its standing in the new merged entity.
The house said the merger of Celcom and Digi would lead to a proforma revenue and EBTIDA of RM14bil and RM5bil, respectively, supported by 21 million customers. This will make the Malaysian merged entity the largest in the country in terms of revenue, EBITDA and customer base.
The merger will allow more flexibility in terms of plan offerings with an upper hand in spectrum portfolio.
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