• Axiata has announced the sale of its 80% stake in Ncell for US$50m - US$5m within six months and US$45m within 48 months of deal completion.

• Axiata will receive a share of distributions from NCell till 2029 and a right to a share of proceeds should the buyer sell Ncell before end 2029.

• Reiterate Add call with an unchanged TP of RM3.07. Asset monetisation is key to Axiata’s rerating, with this transaction a small first step, in our view.

US$50m, Share of Distribution to 2029 and Share of Sale Proceeds

• Axiata has announced that it is selling its 100% stake in Reynolds Holdings Ltd to Spectrlite Ltd, which is 100%-owned by Satish Lal Acharya, a Singapore-based Nepali businessman. Based on news articles (The Edge Malaysia 25 Jan 2021), Satish is linked to the existing local shareholders (20%) of Ncell. Based on its announcement on 1 Dec 2023, Axiata will receive 1) US$5m within six months of deal completion, 2) US$45m within 48 months of deal completion, 3) between 20-80% (on a sliding scale) of net proceeds paid by Ncell to Reynolds between 2023-2029 and 4) an undisclosed percentage of any sale proceeds if Spectrlite sells this stake in NCell before 31 Dec 2029.

Positive Step Towards Monetisation and Reducing Earnings Volatility

• We view this deal positively. While on a cash basis Axiata would have lost money on the acquisition of Ncell since its acquisition in 2016 for US$1.365bn, given that it paid further US$421.9m in capital gains taxes (CGT) in 2020, and has only received RM2.2bn (c.US$471m at current USD/MYR of RM4.65), the sale avoids a further US$433.6m in ongoing tax claims by the Nepali authorities as well as a NPR20bn (RM706m) licence renewal fee for 2024-2029. Provisions/impairments for Ncell have totaled RM5bn between FY21 and 9MFY23.

• The deconsolidation of Ncell will remove c.RM0.5bn in borrowings, including lease liabilities, from Axiata’s balance sheet which had RM36.7bn in total borrowings as at 30 Sep 2023. Our estimates have Ncell contributing RM111m or 14% of FY24F net profits.

Monetisation, Not Earnings, Key to Re-rating; Reiterate Add

• We reiterate our Add call on Axiata with an EV/EBITDA-based (5.7x FY24F) TP of RM3.07. We see monetisation/deconsolidation of its assets as a key driver of reducing its share price discount to our RNAV estimate of RM5.60/sh.

• Key downside risks, in our view, include failure to execute its monetisation plans, regulatory risks in its various operating jurisdictions, and higher interest rates.

Source: CGS-CIMB Research - 1 Dec 2023