Axiata and XL Axiata announced the signing of a conditional SPA to jointly acquire 66.03% equity interest in Link Net for RM2.55bn. Both will then obligated to undertake a mandatory tender offer to acquire the remaining 33.97% Link Net shares. The proposals are expected to be completed in 3Q22. We view this deal positively considering the synergies via their combined positions in wireless communication services, sharing of backbone and transmission networks and extensive relationships with customers in Indonesia. Reiterate HOLD with unchanged SOP-derived TP of RM4.06.

NEWSBREAK

The deal. Axiata and XL Axiata announced the signing of a conditional SPA to jointly acquire an aggregate 66.03% equity interest in Link Net from Asia Link Dewa Pte Ltd and PT First Media Tbk. The purchase consideration has been agreed at IDR4.8k per ordinary share in Link Net or approximately IDR8.72tn (RM2.55bn). This translates to a value of about IDR13.21tn (RM3.86bn) for 100% equity interest in Link Net.

MTO. Under the terms of the SPA, Axiata and XL Axiata shall acquire 46.03% and 20%, respectively from the combined equity interest of 66.03% in Link Net held by the vendors. All will then obligated to undertake a mandatory tender offer to acquire the remaining 33.97% Link Net shares pursuant to regulatory requirements in Indonesia.

Timeline and funding. The proposals are expected to be completed in 3Q22 and will be subjected to customary completion conditions, including regulatory and shareholder approvals. The proposals will be funded via a combination of internally generated funds and/or bank borrowings, the proportions of which will be determined at a later date.

Link Net. Commenced its commercial operations in 2000 and has since grown to be among the leading providers of high-speed broadband and cable TV in Indonesia, reaching 2.8m homes across 23 cities with a subscriber base of approximately 860k. Its FYE9/21 revenue rose 9.8% to IDR3.2tn (RM947m) while EBITDA grew by 14.4% to IDR1.9tn (RM547m) but PATAMI dropped by 1.7% to IDR687bn (RM201m). With staff strength of 882 permanent employees as of FYE9/21, Link Net has secured numerous industry accolades in 2020 which includes the Indonesia Customer Experience Award for Fixed Internet Broadband & Pay-TV, the Indonesia Content Marketing Award, Service Quality Award, Indonesia WOW Brand Award and The Best Contact Centre Indonesia Award.

HLIB’s VIEW

We view this development positively considering the synergies between XL Axiata and Link Net through their combined positions in wireless communication services, sharing of backbone and transmission networks and extensive relationships with customers in Indonesia. Coupled with XL Axiata’s enterprise offerings including mobile connections, Link Net will be well-positioned to capitalise on the growing enterprise market.

Forecast. Unchanged pending the closure of these proposals.

Reiterate HOLD with unchanged SOP-derived TP of RM4.06 (see Figure #1). We like its regional exposures with focus on emerging countries which may deliver great growth potentials. While we are positive on Celcom-Digi merger allowing Axiata to unlock values, regulatory (especially in Nepal) and execution risks are major concerns. Other potential corporate exercises that may unlock values include tower asset and digital businesses listings.

Source: Hong Leong Investment Bank Research - 28 Jan 2022