INVESTMENT HIGHLIGHTS

• Axiata is disposing its 28.7% stake in M1 for RM1.7b with an estimated gain of RM126.5m

• M1’s operation resides in challenging Singapore telecommunication landscape

• The divestment allow Axiata to focus on its main opcos and build sizeable war chest to fulfil edotco’s acquisition goal

• Maintain NEUTRAL with a revised target price of RM3.69

Exiting the Singapore market. Axiata Group Bhd’s (Axiata) has accepted the voluntary conditional general offer by Konnectivity Pte. Ltd for the Group’s entire stake in M1 Limited for a total cash consideration of approximately RM1.7b at the offer premium price of SGD2.06 per share. The Group will effectively divest its 28.7% stake in M1 and exit its investment in Singapore with an estimated gain of RM126.5mn from this deal.

Rationale. Axiata 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. The Group also prefers not to be a minority investor in a potentially privatised company, making the investment illiquid.

Usage of the additional fund. The proceeds from the disposal of M1 will be channelled to support the transformation of all of Axiata’s mobile-centric OpCos into digital converged companies over the next few years, while at the same time, continuing to provide moderate dividends to its shareholders. These investments include the modernisation of the Group’s IT and network infrastructure, digitisation of its operations across all functions and investments into new growth areas especially in Home and Enterprise segments, and to a smaller extent, its digital businesses. Axiata also expects to participate in industry consolidation if opportunities arise, and possible acquisitions in new growth areas over the mid-and long-term in some of its footprint countries.

View. We view that there are earnings pressure from M1 due to the increasingly challenging and competitive market conditions in the Singapore telecommunications sector. Note that more mobile service providers are set to enter in Singapore this year. Thus, the disposal of M1 will enable Axiata to focus on its main opcos.

Source: MIDF Research - 18 Feb 2019