Analysts mildly negative on TM’s raised stake in webe
KUALA LUMPUR: Telekom Malaysia Bhd’s (TM) raised stake in Webe Digital Sdn Bhd (webe) has garnered mildly negative views from analysts, given the near-term earnings dilution.
As per TM’s announcement on Bursa Malaysia last week, whollyowned subsidiary Mobikom Sdn Bhd (Mobikom) has entered into an agreement, with amongst others, Green Packet Bhd (GPB) in relation to the exchange of all the Exchangeable Medium Term Note (EMTN) issued by GPB and held by Mobikom for forms of securities held by Packet One Sdn Bhd.
These forms of securities were ordinary shares of webe and Convertible Medium Term Notes (CMTN) issued by webe.
Upon completion of the scheduled exchange, TM (via Mobikom) and SK Telecom Co Ltd will hold 91.8 per cent and 8.2 per cent of webe’s share capital, respectively.
“This exercise translates to a one-off seven per cent cut to financial year 2020 (FY20F) earnings and a nine per cent decrease in net assets largely due to deemed fair value loss of RM67 million,” AmInvestment Bank Sdn Bhd (AmInvestment Bank) said.
“webe continued to suffer from losses even after being absorbed into TM’s unifi division over the past two years.”
Assuming an annual webe loss of RM50 million together with the absence of eight per cent MTN coupon rate income, the research firm estimated that the additional stake could reduce TM’s FY21F-FY22F earnings by a slight two per cent.
“However, we understand that TM hopes to return to earnings before interest, tax, depreciation and amortisation (EBITDA) positive by next year, which could partly mitigate the earnings impact.
AmInvestment Bank also highlighted that webe has accumulated losses of over RM300 million which can negate future tax liabilities.
“While the rationale for this exercise is to consolidate the group’s ability to expand wireless broadband to underserved and rural areas while facilitating TM’s convergence strategy, we are mildly negative on this development given the nearterm earnings dilution.
“We understand that the group is still aiming to be the sole 5G wholesale operator notwithstanding uncertainties under the Malaysian Communications and Multimedia Commission’s spectrum review currently.”
AmInvestment Bank gathered that the current MTN programme requires Green Packet and TM to determine the exchange price by separately engaging external professional valuers to undertake a fair valuation exercise for webe’s securities.
“However, this variation allows both parties to bypass this lengthy and costly valuation exercise.”
The research firm also gathered that webe was originally branded as Packet One Networks (P1) and later rebranded to unifi Mobile by TM, which acquired an initial 57 per cent equity stake for RM350 million in 2014.
“webe currently holds bandwidths of 30MHz block for the 2300MHz WiMax band and 20MHz for the 2600MHz 4G spectrum.
“However, unifi Mobile also utilises its TMgo 850 MHz LTE band 5 spectrum (refarmed from TM’s CDMA service), while Axiata Group’s Celcom provides domestic roaming on 3G and 2G.”