News Bloomberg reported that China Mobile, the world largest mobile operator by number of users, has held talks to buy c.20% stake in Axiata at an undisclosed price.
The stake would be valued at more than RM11.9b (or c.USD3.7b) based on yesterday’s closing price of RM6.95.
No agreement was reached as Axiata and its largest shareholder Khazanah Nasional Bhd were unwilling to sell that much equity stake and also considered the indicated offer price as too low.
Both China Mobile and Axiata have declined to comment on the news.
Comments We believe the chances of the above-mentioned deal happening is slim given that there are no immediate synergies at this juncture.
Meanwhile, we understand that Khazanah has been actively divesting its non-core assets recently but leave its core assets unchanged.
While the offer price tag remains vague, a quick check through Bloomberg’s mergers & acquisitions data suggested that Axiata could be worth between RM3.51-RM10.56 per share, based on the consensus FY15 earnings estimate and targeted multiples (on past 12-month telecom industry M&A valuation in the Asia-Pacific emerging markets) derived by using the market cap, EBITDA, net profit and book value valuation methodologies.
Outlook Increasing competition, currency fluctuation and regulatory challenges will continue to be key challenges faced by all its OpCos.
The group has lowered its topline annual growth target to high single digit (from 10.1% YoY previously) in May, partly due to delay of Axis acquisition. Its EBITDA growth, however, is merely expected to grow 1.8% YoY, thus suggesting that the group’s EBITDA margin would be squeezed.
Forecast We leave our earnings estimates unchanged pending the upcoming 2Q14 result release on 29th of August.
Rating MAINTAIN MARKET PERFORM
Valuation Maintained our TP at RM6.96, based on a targeted FY15EV/forward EBITDA of 9.1x (+1.0x SD above its 4-year mean)
Risks to Our Call Regulation and currency risks in its overseas ventures.
Source: Kenanga
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