Investment Highlights

• We maintain our BUY call on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM4.50/share (from an earlier RM4.90/share), which implies an FY20F EV/EBITDA of 5.3x – 1 standard deviation below its 3-year average of 6x.

• According to media reports, the group’s subsidiary Axiata Digital has sold a 21.9% stake in Boost Holdings S/B to Singapore-based insurance group, Great Eastern (GE), for US$70mil (RM299mil) cash as part of its strategy to drive the rapidly-growing digital financial services (DFS) business across the region.

• This is the third strategic investment secured by Axiata Digital from financial industry players and the largest foreign investment to date in the Malaysian fintech. In 2018, Sumitomo invested US$20mil (RM86mil) into the group’s digital advertising business ADA while Mitsui invested up to US$50mil (RM214mil) for a minority stake in Axiata Digital last year.

• Boost Holdings comprises Boost (an e-wallet app available in Malaysian and Indonesia), Aspirasi (a micro-financing and micro-insurance digital financing provider that has disbursed US$20 million in loans to date), Apigate (a leading regional direct carrier billing payments player) and Trust Axiata Digital Ltd (a joint venture with a local bank in Bangladesh).

• Aiming Boost as a launch pad to provide digital financial services to other markets wherein the group is located, GE’s investment proceeds are earmarked for expansion plans for Axiata Digital's DFS business over the next year in Malaysia and the region which covers strengthening its ecosystem of merchants and customers, enhancing Aspirasi's credit scoring technology, and potentially support a digital bank.

• We are positive on the group’s continuing strategy of unlocking its multiple assets which are currently underappreciated by the market. Assuming an acquisition PBV of 3x (similar to Twitter’s vs. Facebook’s 6x and Tencent’s 8x), we estimate a one-off non-core gain of RM100mil – 14% of FY20F earnings.

• As Boost is still likely loss-making, the minority sale will marginally improve Axiata’s near-term core earnings. However, the gearing impact will likewise not be substantive as the proceeds account for only 2% of the group’s FY20F net debt of RM13bil. Hence, we maintain Axiata’s FY20F–FY22F core earnings.

• For a regional telco operator with excellent opportunities to further monetise its assets and engage in merger and acquisition activities, Axiata currently trades at a bargain FY21F EV/EBITDA of 4x vs. Maxis' 12x.

Source: AmInvest Research - 26 Jun 2020