Keppel Corp, together with SPH, has launched a Pre-Conditional VGO for Singapore-listed M1 shares. The joint-offeror currently owns 32.8% of M1 shares while Axiata owns a 28.7% stake. We are neutral on the VGO – we see five possible outcomes from the offer, four of which are neutral to positive to Axiata’s shareholders while the fifth outcome, a costly bidding war, may weaken investor sentiment. We maintain our HOLD rating on Axiata with an unchanged SOP-derived TP of RM4.42.

Offer Price: S$2.06 Per Share, 14.9x Consensus CY18E EPS

Keppel Corporation (KCL – KEP SP, SGD7.16, Buy [1]), together with Singapore Press Holdings (SPH; not rated), has announced through a jointly held SPV a Pre-Conditional Voluntary General Offer for M1 Limited (M1 SP, SGD1.63, Outperform [2]) to seek majority control of M1. The offer consideration is S$2.06 cash per M1 share, representing a 30% premium to the 1-month VWAP, 14.9x CY18E EPS (consensus forecast) and 7.7x CY18E EV/EBITDA (consensus forecast). The offeror jointly owns 32.8% of M1, and the offer is conditional upon the offeror and its concert parties obtaining more than 50% of M1’s issued capital of at the close of the offer.

Axiata to Evaluate All Options Available; Five Possible Outcomes

Axiata, the major shareholder in M1 with a 28.7% stake, will review all options available to it in relation to its shares in M1, in order to protect and enhance shareholders’ value of both Axiata and M1. For now, we sense that Axiata is not satisfied with the offer price. To recap, the carrying value for Axiata’s 28.7%-stake in M1 was RM1.52bn as at end-Dec17, and the offer price came in at a 9% premium at RM1.65bn. Overall, we are neutral on the offer; we see five possible outcomes from the VGO, and most are neutral to positive to Axiata’s shareholders, except the fifth scenario in which Axiata could engage in a costly bidding war.

Maintain Hold With An Unchanged TP of RM4.42

We maintain our earnings forecasts and HOLD rating on Axiata with an unchanged SOP-derived target price of RM4.42. Operationally, we expect its key operating subsidiaries to record further revenue gains. However, the stiff competition and rising cost pressures may continue to cap earnings growth and weigh on investor sentiment. Upside risks: strong turnaround of its subsidiaries, value-accretive M&As; downside risks: intensified competition, engaging in pricey bidding war.

Source: Affin Hwang Research - 28 Sept 2018