WITH Axiata Group Bhd, Telenor Asia Pte Ltd and DiGi.Com Bhd (Digi) having inked their transaction agreements for the proposed merger (MergedCo) of Celcom and DiGi after completing the due-diligence exercise, a consolidation of the Malaysian telco industry which can help ease competitive pressures is definitely underway.
TA Securities Research viewed the merger as capable of creating a commercially stronger and more resilient entity in Malaysia’s largest telco which ranks first in terms of revenue (RM12.4 bil); earnings before interest, taxes, depreciation, and amortisation (EBITDA) (RM5.7 bil); net profit (RM1.9 bil); free cash flow (FCF) (RM4.0 bil); and subscriber base (circa 19 million).
“(The) MergedCo is expected to realise synergies across network, IT, operations, and procurement,” projected analyst Wilson Loo in a sector update.
“Based on the potential synergies of circa RM8 bil, net off with circa RM1.7 bil to be paid to Axiata, we estimate a 13.2% value accretion over MergedCo’s pre-synergy equity value of RM47.6 bil.
“The cost synergies would also mean that MergedCo’s shareholders stand to benefit from higher dividends which in turn would also support Axiata’s high dividend aspirations.”
Moving forward, TA Securities Research expects the MergedCo – with its scale and financial strength – to be in a stronger position to drive the Government’s MyDigital aspirations.
“Beyond 4G, it will help accelerate innovation in areas like 5G, Internet of Things (IoT), artificial intelligence (AI) to tap the enterprise segments,” opined the research house.
All-in-all, TA Securities Research maintained its “overweight” stance on the telco sector while imputing a 10% premium on Axiata (to RM4.55 from RM4.40 previously) and DiGi (to RM4.50 from RM4.10 previously).
More broadly, the research house reiterated its “buy” recommendation on Axiata (target price: RM4.55), Maxis Bhd (target price: RM5.05), and Telekom Malaysia Bhd (target price: RM7.00).
On the same note, the research house also raised its rating on DiGi to “hold” from “sell” with a target price of RM4.50 given its improved risk reward potential.
“Key risks include non-completion risk, prolonged COVID-19 pandemic, regulatory changes, and unprecedented price competition,” added TA Securities Research.
At 9.15am, DiGi was up 10 sen or 2.31% to RM4.42 with 655,800 shares traded, thus valuing the company at RM34.37 bil, while Axiata was up 5 sen or 1.26% with 96,200 shares exchanged hands, thus giving the company a market capitalisation of RM36.97 bil. – June 22, 2021
