Investment Highlights

• We maintain our BUY call on Axiata Group (Axiata) with unchanged forecasts and sum-of-parts-based fair value of RM6.05/share, which translates to an FY19F EV/EBITDA of 6.5x, 40% of Maxis’ 11x.

• Axiata is open to considering any offer for its 29.7% equity stake in SGX-listed M1 Ltd subject to an “acceptable control premium based on market norms and precedent transactions of similar nature”, the media reported today.

• M1 currently accounts for 2% of Axiata’s SOP. The group is in discussion with a financial institution to act as its advisor to review the available options for M1.

• This comes following Bloomberg’s recent report that Keppel Corporation and Singapore Press Holdings (SPH), which have effective stakes of 19.3% and 13.5% respectively in M1, are considering making a general offer for the remaining M1 shares not owned by them.

• Recall back in July 2017, all 3 parties – Axiata, Keppel and SPH – ended their strategic review of their stakes in M1 after proposals from interested parties did not meet the minimum criteria and parameters determined by the majority shareholders.

• Given that M1’s FY19F consensus PE is 14x lower than Axiata’s 33x, we expect a slight FY19F EPS reduction of 3% from the equity sale, as the loss in earnings contributions will be greater than interest savings based on current market valuation.

• However, the cash proceeds from the sale will improve Axiata’s gearing levels, with FY19F net debt/EBITDA decreasing from 1.6x to 1.4x.

• Hence, we are neutral on this development for now as the associate stake in M1 is not considered a strategic asset for Axiata amid a highly competitive cellular market with the commencement of the fourth Singaporean telco operator TPG Telecom, which has offered free mobile plans for customers over 65 years old.

• We do not think that Axiata is likely to make its own offer for M1 if the offer price is too low, as indicated in the reports, given that the group is highly conscious of its high gearing position currently which has constrained its dividend paying capability over the past 2 years.

• With revenue growth prospects improving for Celcom, XL, NCELL, Dialog and SMART, Axiata currently trades at a bargain FY19F EV/EBITDA of 6.5x, way below its 2-year average of 8x vs. Maxis’ 11x.

Source: AmInvest Research - 27 Sept 2018