Axiata's proposed Link Net acquisition to create new synergies

KUALA LUMPUR: Axiata Group Bhd's proposal to acquire a 66.03% stake in one of Indonesia's leading providers of high-speed broadband and cable TV could unlock synergies for the telco group.

The group announced in a bourse filing yesterday that it has proposed to acquire PT LInk Net Rbk for IDR8.7 trillion (RM2.5bil) or IDR4,800/share via indirect wholly owned subsidiary Axiata Investments (Indonesia) Sdn Bhd and 61.48%-owned PT XL Axiata Tbk.

TA Securities in a report said it expects Link Net to be a positive addition for XL due to the synergies that will be created.

"According to the announcement, the complement of XL’s mobile business and Link Net’s fixed broadband business is expected to allow delivery of enhanced fixed-mobile converged proposition to both the retail and enterprise markets.

"Significant synergies are also expected through the sharing of backbone and transmission networks, and the cross-selling of various services, it said.

It added that the acquisition is deemed strategic as it will enable XL to strengthen its presence and fast-track expansion in Indonesia's underpenetrated and fast-growing fixed broadband market.

Furthermore, the acquisition is expected to lead to a strong fixed-mobile proposition to help XL defend and grow its market share in Indonesia's highly competitive mobile market while also offering upside to average revenue per user, it said.

TA Securities estimates Axiata's effective stake of 58.33% in Link Net to lift its 2023 forecast earnings per share for the group by about 5.9%.

The assumptions are based on Link Net's 2020 net profit of RP900bil net estimated finance cost on 100% borrowings to fund the acquisition.

The brokerage also expects the potential impact from the total purchase consideration of IDR8.7 trillion on Axiata and XL's balance sheet to increase gross debt to Ebitda from 1.6 times to 1.8x and 0.8 time to one time, which it considers manageable.

TA Securities maintained its "buy" recommendation on Axiata with a target price of RM4.55.
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TA Securities , Axiata , Link Net , Indonesia


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