AXIATA GROUP BHD

AMINVESTMENT Bank Research is maintaining its “buy” call on the company, with an unchanged sum-of-parts-based fair value of RM6.30 per share, on expectations of a value-enhancing re-merger with TM, which could reduce the valuation differential with its peers and re-energise its earnings prospects.

“Bloomberg reported that Axiata is tentatively planning a domestic listing of its 62%owned edotco Group Sdn Bhd this year, which could raise US$500mil (RM2bil) in an initial public offering. The group may be inviting investment banks to formally pitch for a role in the deal this quarter.”

“As we had updated in April last year, Axiata placed out US$700mil (RM2.8bil) of edotco’s shares to Innovation Network Corp of Japan, Khazanah Nasional and Kumpulan Wang Persaraan which then valued edotco’s equity at US$1.5bil (RM6bil) based on a 2016 enterprise value / earnings before interest, taxes, depreciation, and amortisation (EV/ ebitda) of 12.5-times.”

“Management’s strategy is to continue to expand organically and via acquisitions, while tenancy ratio has improved to 1.5-times from 1.4-times in December 2016.”

“Hence, we are positive on Axiata’s potential unlocking of edotco’s embedded valuations, which could catalyse the group’s valuation re-rating while securing additional cash estimated at up to RM2bil – 14% of Axiata’s 2018 group debt, and reduce the group’s net debt to ebitda from 1.4-times to 1.2-times.

“Potential earnings impact will be minimal given the group’s huge base. Axiata currently trades at a bargain 2018 EV/ebitda of seven-times, way below its two-year average of eight-times compared with SingTel’s 14-times.