• Keep BUY, with new SOP-based TP of MYR3.03 from MYR3.18, 30% upside and c.4% FY24F yield. We believe the expeditious sale of Ncell (announced on 1 Dec) removes a key overhang and addresses the concerns that the group may not be able to find a suitable buyer. Axiata remains a key sector laggard (YTD: -25%) with forward EV/EBITDA at -2SD from its historical mean. A stronger re-rating should accompany better clarity on its asset delayering and balance sheet deleveraging initiatives.

• Ncell a done deal. Less than a week after classifying 80%-owned Ncell as an asset for sale (discontinued operations), Axiata announced that it has entered into an unconditional sales and purchase agreement (SPA) for the sale of the asset to Spectrlite UK Ltd, a Nepalese-owned telecoms investor. The all-cash deal would see Axiata pocketing USD50m and related cash distributions that are conditional on Ncell’s dividend distributions, up to FY29F.

• Speedy divestment puts to rest talks of a void in interest. We view the expeditious sale positively to address market concerns of the group’s ability to find a suitable buyer, considering the protracted regulatory issues and uncertainties that have plagued Ncell, chief of which relates to the outstanding capital gains tax (CGT) issue. Axiata’s position of a “clean exit” without an open tender suggests that it was willing to part ways with concessions, resulting in the lower but assured upfront cash payment of USD50m from the sale and potential dividend income, which are contingent on Ncell’s performance for FY23F-FY29F. The group has fully impaired Ncell as at 3Q23 with a carrying value of MYR375m in its books.

• Outstanding CGT claims render a potential tax liability of USD855m (c.MYR3.9bn) or 18% of Axiata’s market cap. To date, Axiata has settled MYR1.8bn or c.USD422m in CGT dues as a responsible corporate citizen despite protesting the amount which should have been borne by the seller (Telia). Based on the latest assessment by the Nepal Large Taxpayers Office (LTPO) in Jan 2021 (excluding interest) of another USD434m (MYR2bn) in CGT dues, the total CGT liability, which includes the amounts settled earlier would have been c.USD855m (65% of its purchase price for Ncell of USD1.37bn in 2016) or 18% of Axiata’s market capitalisation or 43 sen per Axiata share, based on our estimates.

• Maintain BUY, SOP-based TP lowered to MYR3.03 after removing Ncell. We make no change to our earnings forecasts for now pending further clarity from management. Axiata is slated to hold its annual investor day on 6 Dec with updates on its asset delayering and monetisation opportunities. Excluding Ncell, our TP drops to MYR3.03 (includes USD50m first consideration proceeds). Key risks are competition, weaker-than-expected earnings, regulatory setbacks and FX. Our TP bakes in a 2% ESG premium.

Source: RHB Securities Research - 4 Dec 2023