• Axiata received pre-conditional offer from Konnectivity for its 28.7% share in M1 at SGD2.06 per shares
• We view the offer positively due to: i) Reasonable valuation at EV/EBITDA 7.5 and ii) M1’s diminishing earnings as a result of intensified competition.
• We revamp our forecasts and valuation accordingly as we revisit our key assumptions amidst MFRS15 adjustments and escalated price war throughout the region.
• Despite facing challenges in the near term, Axiata’s exposures in key emerging markets with low data penetration offers good long term prospect, in our view. HOLD with SOP-derived TP of RM4.60.

A timely offer

M1 shareholders received a pre-conditional offer from Konnectivity Pte Ltd, a company jointly owned by Keppel Corp Ltd and Singapore Press Holdings Ltd, to acquire M1 at SGD 2.06 per share. This is a 26% premium over the last traded price of SGD1.63 (21 Sep 2018 closing). The share price has poor performance after falling 8.43% YTD and touching 9 years low of SGD1.51 recently.

Positive on the offer

We are positive on the offer as it implies a reasonable 7.5x EV/EBITDA multiple. This is approximately +1 standard deviation of M1’s 2-year blended forward. On top of that, M1’s earnings have also declined at - 2.2% compounded rate over the last 3 years. The poor performance reflected the intense competition from new entrants in the market. On that note, we view this as a good opportunity for Axiata to crystallise its investments and redeploy in other markets or operations that offer better growth prospects.

Earnings revamp

We revamped our valuation model to factor in the MFRS15 adjustment as well as revisit our key assumptions to reflect the escalating price war in certain markets. We also took the opportunity to review our FX rate assumptions as well as debut our 2020F figures.

HOLD with TP RM4.60

We recommend to HOLD with SOP derived TP of RM4.60. Despite of escalated price war and regulation challenges, we believe Axiata would record long-term growth given its exposure in low smartphone penetration and data usage in emerging countries.

Source: BIMB Securities Research - 28 Sept 2018