Axiata has accepted the voluntary conditional general offer by Konnectivity Pte. Ltd, for its entire stake in M1 Limited for a cash consideration of approximately RM1.65bn. Axiata will effectively divest its 28.7% stake in M1 and exit its investment in Singapore with an estimated gain of RM126.5m from this deal. We are positive on the deal – it enables Axiata to exit the investment at profit and allow the group to redeploy the capital to fund its capex. Overall, the deal is largely within our expectations; we maintain our HOLD with an unchanged SOP-derived TP of RM3.63.

Axiata Accepts the RM1.65bn Offer for Its 28.7% Stake in M1

Axiata announced that the group has accepted the voluntary conditional general offer by Konnectivity Pte. Ltd for its entire stake in M1 Limited for a total cash consideration of approximately RM1.65bn (at offer price of SG$2.06 per share against closing price of SG$ 2.04). The group will effectively divest its 28.7% stake in M1 with an estimated gain of RM126.5m from this deal. To recap, Axiata’s investment in M1 commenced in 2005 and M1 had steadily contributed to Axiata’s growth over the years with dividends amounting to RM1.1bn in the last 10 years.

The Proceeds Can be Reallocate for New Growth Priorities

Axiata said that the group has made the decision to accept the offer due to the need for capital reallocation and new priorities in line with its vision to be the Next Generation Digital Champion by 2022 and the investments required to achieve that. Axiata also prefers not to be a minority investor in a potentially privatised company, making the investment illiquid.

We Like the Deal But It Is Largely Expected; Maintain HOLD

We are positive on the deal – it enables Axiata to exit the investment at a profit and provide the group timely capital for future investment. The deal is largely consistent with mmanagemen's strategic directions and is broadly within our expectations. We maintain our HOLD rating on Axiata with an unchanged price target of RM3.63 based on a 25% discount to its SOP valuation (Fig 1). Operationally, we expect Axiata’s 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

Source: Affin Hwang Research - 18 Feb 2019