Axiata has accepted Ml's offer to exit the Singapore market. We have trimmed our FY1 8/1 9E numbers by 2%/6% post imputing XL's numbers as well as to remove M1 contribution. BUY with a TP of RM4.35. 

Axiata announced that it had accepted the voluntary conditional general offer by Konnectivity Pte. Ltd, Singapore, to dispose of the entire 28.67% stake in M1 for a total cash consideration of c.RM1.65b at the offer price of SGD2.06 (or c.26% premium over the last traded price of SGD1.63 on 2lstSeptember 2018, being the last trading date prior to the announcement of the Offer). 

The divestment of nonstrategic investment is expected to record an estimated gain of RM126.5m and bring home RM 1.65b cash. The proceeds are expected to be utilised for general corporate purposes and/or repayment of existing debts. The proposed disposal is expected to be completed by February 2019. 

Though Axiata remained hopeful on M 1's long-term prospect, its inability to extend control either via management representatives or ownership structure over M1 , had prompted the group to divest and reallocate the capital. 

In a separate announcement, XL (a 66.4%-owned subsidiary of Axiata)'s FY18 normalised NL of Rp9b (vs. FY17:Rp741b) came in below expectations, where the street as well as we were targeting net profit of Rp139b and Rp209b for the full-year, respectively. The key negative variance was mainly due to higher-than-expected finance costs. Stripping off the one-off charges, the group reported a core PATAMI of Rp81 b in 4Q18 with EBITDA margin improving to 38.8% vs. 37.1% in 3Q18. All in, despite the challenges faced in 4Q18, XL's ability to perform suggested that the group is heading in the right direction.

Source: Rakuten Research - 18 Feb 2019