- Axiata has entered into an agreement with Samart Corporation to dispose its entire 24% shareholding in Samart i-Mobile Public Company Ltd (SIM) for RM284mil. The deal values the stake at 11x FY14F earnings.

- Samart Corporation is the major shareholder of SIM with a 52% stake.

- SIM is generally involved in the provision of instant wireless information services and mobile content, along with the distribution of mobile phones and accessories.

- Samart i-Mobile contributes a net RM19mil (FY13) - RM25mil (FY14F) to Axiata (based on Axiata’s 24% stake), translating into 0.7% of FY13 earnings (and 0.9% of FY14F).

- As such, we expect marginal impact to Axiata’s earnings from the disposal.

- However, the group’s entry cost into SIM (via Telekom Malaysia previously) was circa RM120mil, which means Axiata may recognise circa RM164mil gains from the disposal.

- Sales proceed of RM284mil is likely to be used to pare down debt, according to news reports. Even if the amount were to be paid out as dividends, it would enhance yields by an additional 0.4ppt, which is pretty marginal.

- Additionally, impact on balance sheet is also expected to be marginal – i.e. net gearing reducing from 47% (as of 1Q14) to 45.5%.

- Maintain HOLD at unchanged SOP fair value of RM7.00/share. SIM makes up only 0.4% of Axiata’s sum-of-parts hence the disposal would have little impact on our valuation.

- Our concern is centred on the impact of Axis to XL’s earnings in the near term and secondly, on the timing and execution of its turnaround plan (though we note that Axiata has a good track record at this, based on the turnaround executed at Smart in Cambodia). As of 1Q14 (which recognised a 13-day consolidation of Axis), we estimate Axis’ losses to have wiped out 25% of XL’s core earnings. 

Source: AmeSecurities