Axiata Group Bhd (Dec 14, RM6.51)
Maintain hold at RM5.22 with a target price of RM6.53: Axiata group and its wholly-owned subsidiary, Axiata Investments (Cambodia) Ltd have entered into a sale and purchase agreement with Timeturns Holdings Ltd to acquire the entire ordinary shares in issue of Glasswool Holdings Ltd, which will be the owner of all the ordinary shares in issue of Latelz Co Ltd.
Based on the latest records of the Ministry of Posts and Telecommunications of Cambodia, Latelz operates under the brand name of “Smart Mobile” and holds a GSM licence with 15MHz (GSM1800) and 3.6MHz (GSM900), 3G licence with 10MHZ (UMTS2100) and ISP licence with 70MHz (WiMAX).
Upon completion of the transaction, Axiata will merge its wholly-owned subsidiary, Hello Axiata, and Latelz. The merger is subject to regulatory approvals.
The acquisition will be settled via a cash consideration of US$155 million (RM474 million) as well as a 10% stake in the combined entity, giving Axiata a 90% stake in the merged company. It will be financed by internally generated funds and debt from Axiata’s existing financing facilities.
We understand the deal is valued at 10 times enterprise value-to-earnings before interest, tax, depreciation and amortisation (EV/Ebitda) and it is scheduled to be completed by the first quarter of 2013.
Although the valuation of the deal is not cheap, we are positive on the strategic combination as the merger synergies are well poised to strengthen its market leadership in Cambodia.
The impact on our financial year 2012 ending Dec 31 (FY12) Ebitda estimates is negligible (less than 1%) based on the proforma consolidation annualised first half FY12 Ebitda for Hello/Smart.
We believe Axiata could still afford to maintain a dividend payout ratio 65% for FY12 (as guided) as the acquisition cost is minimal in view of its large cash pile of RM7.67 billion (as at September 2012) and low net gearing of 0.25 times.
Although our target price of RM5.22 is lower than the current share price, we continue to favour Axiata for its resilient earnings and regional exposure.
Maintain “hold” with a sum-of-parts-based target price of RM5.22. — ECM Libra Research, Dec 14
This article first appeared in The Edge Financial Daily, on Dec 17, 2012.