Axiata Group (Axiata) announced that it is selling a 5% stake in its Indonesia listed subsidiary, XL Axiata (XL), to Ferrymount Investments (FIL) for IDR1,440bn (equivalent to RM423.5m) or IDR2,700 per share. Currently, Axiata holds a 66.5% stake in XL Axiata. The rationale of the disposal is to enable XL to further develop its digital and value-added services with the affiliated companies of FIL that focus on Indonesia’s telecommunication and technology sectors. Following the disposal, our SOTP-based TP is estimated to reduce by ~1.2% while the impact to core profit is expected to be immaterial. Our Neutral call and TP of RM4.00 remain unchanged.

• Details of disposal. Axiata entered into a sale and purchase agreement with FIL, Procap Partners and Tiga Investments for the disposal of 533.4m shares or a 5% equity interest in XL Axiata to FIL at IDR1,440bn or IDR2,700 per share. This represents a 5% discount to the one-month volume weighted average price (VWAP) of XL. In conjunction with the disposal, FIL has granted Axiata a call option to purchase 533.4m XL shares from FIL, exercisable in the event the 3-month VWAP of XL is

• Rationale. Procap Partners is a company with investments in various technology-focused companies based in Indonesia and Southeast Asia while Tiga Investments, founded by Mr George Raymond Zage, has a focus on making long term and active investments in the technology sector in Indonesia. Procap Partners and Mr Zage indirectly hold 2/3 and 1/3 of FIL respectively. The rationale of the disposal is to enable XL to leverage on Procap Partners and Tiga Investments’ connection to Indonesian digital ecosystem to further develop XL’s digital and value added services in the telecommunication sector.

• Financial impact. Our projected core earnings and SOTP-based valuation are not expected to be materially affected by this disposal. Although the group would raise some RM423.5m, we believe much of the proceeds will be reinvested into developing the local Malaysian telecommunication infrastructure network.

Source: PublicInvest Research - 28 Sept 2021