PETALING JAYA: Shares in Axiata Group Bhd and Digi.com Bhd took a beating yesterday, as investors weighed in on the impact on the telcos following the termination of the planned mega-merger between Axiata and Norway’s Telenor ASA.
At market close, Axiata’s share price had fallen 15.7% or 77 sen to RM4.11, wiping out 12.46 points from the stock market’s benchmark index FBM KLCI.
The slide in Axiata’s share price saw RM702.9mil being wiped off its market capitalisation, reducing it to RM37.52bil.
Digi, which is 49%-owned by Telenor, fell 29 sen or nearly 6% to close at RM4.60 and erased four points from the index.
On the Oslo stock exchange, Telenor’s share price also suffered a similar fate and as at press time was down by one Norwegian krone to 175.25.
According to analysts, it was not surprising that investors digested the latest turn of events negatively, as major synergies of RM15bil-RM20bil was expected to be realised from the planned merger, which would have created one of the largest telecommunications groups in the region.
With the collapse of the deal, they also do not expect much excitement for the sector in the near term.
For context, shares in both Axiata and Digi had risen 18% and 8% respectively since the deal was announced on May 6.
On Friday, Axiata and Telenor mutually ended talks to merge their Asian telecoms assets and infrastructure to create a new company that would have 300 million customers across nine markets, citing “complexities” as reasons.
The development saw several research houses downgrading the sector or keeping a neutral stance on expectations of the re-emergence of a mobile war between the existing telecoms operators.
As for Axiata and Digi, data compiled by Bloomberg showed that Axiata had eight sell calls, 14 hold and four buy calls.
In the case of Digi, there were 19 hold calls and four sell calls.
The 12-month target price, according to analyst consensus, was RM4.73 a share for Axiata and RM4.65 for Digi.
With such downgrades, some are wondering what would the next catalyst be for Axiata, as it can’t rely solely on organic growth, given the challenges it faces in several countries including the tax issue in 80%-owned Ncell in Nepal.
Although it has some suitors interested in its business in Indonesia and South Asia, the bigger catalyst for any upgrade of Axiata would be the potential listing of its tower business held via edotco Group Bhd.
edotco has reportedly attracted suitors and that could potentially raise its valuations to above US$3bil.
At some point, Axiata will have to decide on what it plans to do with edotco.
Axiata boss Tan Sri Jamaludin Ibrahim did give a glimpse of what the future holds.
In a memo to colleagues on Friday, a copy of which was sighted by StarBiz, he said that “you can be certain we will continue to challenge and support each other as we execute on mid-to-long term plans to ingrain operational excellence into our very fabric, continue to make prudent investments in new growth areas of enterprise, home and digital value-added services, and re-engineer how we can better synergise our IT, network and business transformation across the group.”
Yesterday, Bloomberg named CK Hutchison Holdings Ltd, the Hong Kong conglomerate backed by tycoon Richard Li, as having made preliminary approaches about a potential combination of their Indonesian telecoms operations.
Quoting people with knowledge of the deal, the report said the parties had yet to start any substantive negotiations.
Hutchison has a wireless business in Indonesia, while Axiata holds a 66% stake in PT XL Axiata Tbk, Indonesia’s second-largest mobile player.
Business-wise, Jamaludin during a conference call with analysts on Friday said Axiata would focus on industry consolidation opportunities in Indonesia and Bangladesh, which may or may not include a journey with Telenor.
Since the merger between its unit, Celcom Axiata Bhd, and Digi is also not happening, Axiata will now focus on infrastructure partnership and it may include infrastructure sharing with the likes of TELEKOM MALAYSIA BHD (TM), Digi and Maxis Bhd.
However, Jamaludin ruled out any re-merger exercise between TM and Axiata.
As for the sector outlook, Kenanga Research anticipates prospects within the sector to be largely driven by a race for cost efficiency.
“Celcos continue to be challenged by competitive pricing and the migration of subscribers towards more value-for-money packages, while sector-wide operational cost fixing comprises mainly rationalising network and squeezing direct costs.”
Others see the re-emergence of a mobile war, given that mobile competition would remain just as intense as over the past four years.
AmInvestment Research, for instance, expects continuing pressure on average revenue per user and subscriber trajectory, even though second-quarter 2019 subscribers recently flipped to a net sequential accretion of 77,000 after four years of continuous contractions.
With the upcoming National Fiberisation and Connectivity Plan, mobile service providers would also need to be more aggressive in their cost-optimisation initiatives to maintain healthy cashflow, said analysts.