Celcom  Axiata  has  bought  a  20%  stake  worth  RM20m  in  Merchantrade Asia Sdn Bhd, which is involved in remittance services to major countries in Asia  including  Bangladesh,  Nepal,  Indonesia,  Philippines,  Vietnam,  India and Sri Lanka. Merchantrade handled RM2.3bn in remittance in 2013 and RM3.3bn in 2014. It registered a profit after tax of RM26m in 2013 which is estimated to increase by 25-30% in 2014. The deal will see Celcom tapping into  the  migrant  worker  market  via  Merchantrade  who  is  a  mobile  virtual network  operator  providing  voice,  data  and  mobile  remittance-related services.  (Source: Malaysian Reserve)

Comments:  Based  on  estimated  net  profit  of  between  RM33-34m  for Merchantrade,  the  acquisition  PER  multiple  is  very  attractive  at  3x  and hence should be accretive to Celcom. While this acquisition could enhance Celcom’s penetration into the migrant worker segment, we think that impact to Celcom or the larger Axiata group, is unlikely to be meaningful in the near term.  Celcom  registered  a  net  profit  of  RM2.3bn  in  2013  (estimated RM2.0bn in 2014). Maintain our SELL rating on Axiata with a TP of RM5.97.

Source: Affin Hwang Capital Research - 30 Jan 2015