Analysts neutral on Axiata’s options on M1
KUCHING: Analysts are ‘neutral’ on Axiata Group Bhd’s (Axiata) decision to evaluate all options available for its 28.1 per cent stake on Singapore’s mobile network operator and SGX- listed M1 Ltd ( M1) but they view that the possible sale proceed of M1 could improve the group’s gearing levels.
Ye s t e r d ay, fol l owi n g the offer announcement made by Konnectivity Pte Lt ( Konnectivity), a special purpose vehicle company (SPV) jointly- owned by Keppel Corporation Ltd and Singapore Press Holdings Ltd (SPH), for all of Axiata’s issued and paid-up ordinary shares in the capital of M1, Axiata said that it is open to all options available to it, with the sole objective of protecting and enhancing shareholders’ value of both Axiata and M1.
It is reviewing the offer made by Konnecitivity, together with other considerations within the Asean market as M1’s historical trading trend price has been depressed for more than a year vis-a-vis its true value potential, long-term growth potential, and future competitive outlook.
To note, Axiata is M1’s biggest shareholder, while Keppel owns about 19.7 per cent through a unit, and SPH owns circa 13.3 per cent, according to a Reuters report.
AmInvestment Bank Bhd’s research arm (AmInvestment) noted that the offeror and interested parties currently have a 33 per cent equity stake in M1, which accounts for two per cent of Axiata’s sum- of-parts.
It added that the rationale for this offer, which is subject to Konnecitivity securing an equity stake of over 50 per cent from the general offer (GO), is to facilitate majority control in M1 to support business
transformation initiatives including digitalisation of the company’s operating platform, cost management drives and balance sheet optimisation.
It also noted that this was to enable M1 to meet the intense competition caused by the entry of the fourth telco operator TPG Telecom and more mobile virtual network operators ( MVNO) which have
pressurized the sector’s market share, revenue and margin trajectory amid requirements of substantive reinvestments to improve network connectivity even further.
“As these may affect dividend paying capability and lead to share price volatility, the offeror has no intention of preserving M1’s listing status in the event the GO leads to a free float that is below the minimum threshold of 10 per cent
“We are not surprised by the GO, which is likely to be accepted by Axiata as the associate stake in M1 is not considered strategic asset for Axiata amid a highly competitive cellular market which needs sustained capital expenditure (capex) rollouts,” AmInvestment said.
Given that M1’ s FY19F consensus price earnings ( PE) is 14- folds much lower than Axiata’s 33- folds, the research house expected a slight FY19F earnings per share ( EPS) reduction of two per cent from the equity sale, as the loss in earnings contributions would be greater than interest savings.