News

Axiata has completed the acquisition of Nepalese mobile operator Ncell. The group has received the approvals from all relevant government authorities involved in the acquisition exercise, both in Malaysia and Nepal.

Through its wholly-owned subsidiary, Axiata Investments (UK), Axiata has completed the acquisition from TeliaSonera and SEA Telecom Investments of Reynolds Holdings. The acquisition of Reynolds at the purchase price of USD1.365b plus customary adjustments at closing, effectively secures Axiata an 80% equity interest and controlling stake in Ncell. The remaining 20% stakes will be held under the local partner – Sunivera Capital Ventures Pte Ltd.

Axiata expects to see immediate synergies from the Ncell acquisition in several areas. In particular, the overseas foreign workers (OFW) segment, where there are approximately one million Nepalese in Malaysia alone, representing opportunities in international calling and mobile-remittance.

In conjunction with Axiata’s entry into the Nepali market, the group has introduced two special edition voice and roaming products for Ncell customers.

Comments

We remain POSITIVE on the acquisition and believe the deal could provide immediate earnings accretion to Axiata. On top of that, Ncell’s strong cash-flow generation with FCF of c.NPR22b (or USD217m) in FY July 15, is well positioned to support Axiata’s dividend policy moving forward.

The completion acquisition date (by mid-April) has come in slightly early than our expectation (1H16), which is a mild positive surprise to us.

Earlier, we had factored in Ncell’s turnover to grow 10%/8% (mainly underpinned by its healthy voice segment revenue) in FYE-July16//17E.

Outlook

Increasing competition, currency fluctuation and regulatory challenges will continue to be key challenges faced by Axiata’s OpCos.

Forecast

In view of the earlier than the expected acquisition completion date, we have raised our FY16E turnover/EBITDA by 2.8%/1.1% after factoring in higher turnover/EBITDA contribution from Ncell (RM1.9b/RM956m vs. RM1.3b/RM654m previously). FY17E earnings, however, remains unchanged.

Rating

Maintain at MARKET PERFORM

Valuation

Raised Axiata’s TP to RM6.15 (from RM6.10 previously) based on unchanged targeted FY16E EV/forward EBITDA of 7.9x (representing -1.0 SD below its 4-year mean).

Risks to Our Call

Regulation and currency risks in its overseas ventures.

Source: Kenanga Research - 13 Apr 2016