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-- 82.140 Axiata Receives "BUY" Rating with Target Price of MYR3.40
RHB reiterates a "BUY" rating on Axiata with a sum-of-parts (SOP) derived target price of MYR3.40, offering a 44% upside potential. The merger of XL Axiata with Smartfren marks a significant milestone in Axiata's portfolio optimization strategy, potentially reshaping Indonesia's telecom landscape.
Axiata's subsidiary XL Axiata (XL) will merge with Smartfren (FREN) through a share swap, creating XLSmart Telecom (XLS). Post-merger, Axiata and Sinarmas Group will each hold 34.8% stakes in XLS, consolidating Indonesia's mobile market into a three-player field.
The merger aims to improve market dynamics, drive scale benefits, and enhance financial resilience. Expected synergies of USD300-400m per annum pre-tax are anticipated, primarily from network integration and IT optimization. XLS will command a 27% subscriber market share, matching Indonesia's second-largest player.
The merger is expected to create MYR0.8bn in value accretion for Axiata. USD475m proceeds from XL's partial monetization will reduce debt, potentially offsetting earnings loss from XL's deconsolidation. Axiata's market valuation is projected to see a net USD0.2bn uplift post-merger. The 9M24 net debt/EBITDA is expected to decline to 2.48x from 2.59x, with gearing improving from 1.21x to 0.77x.
The merger will reshape Indonesia's telecom landscape, potentially leading to rational pricing and improved sector profitability. XLS expects 34% revenue and 29% EBITDA growth post-merger, boosting market competitiveness. Despite XL's deconsolidation, Axiata's 9M24 PATAMI is projected to rise to MYR1.22bn from MYR1.17bn, mainly due to lower interest charges. The MYR3.40 target price includes a 2% premium, reflecting positive outlook on strategic moves.
Axiata remains attractive due to portfolio optimization and potential improved financials post XL-Smartfren merger. The deal should enhance market position and financial flexibility, supporting a bullish outlook. Investors should note potential integration challenges and evolving Indonesian telecom regulations, which may affect synergy realization.
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swcv2 : Axiata (AXIATA, 6888, Main Board Telecommunications and Media)
Rating: Sell, TP: RM1.95
After Celcom was demerged and merged with Digi-Link, there is little reason for investors to continue holding Axiata, so Axiata's valuation discount is expected to widen to 30%.
The merger with XLSmart is expected to increase Axiata's revenue, but it also increases the company's exposure to frontier markets, which have historically been more volatile.
Axiata’s potential upside comes from the divestment of Edotco and Axiata’s digital services business.
The rating was downgraded to “sell” and the target price was lowered from RM3.50 to RM1.95.