PETALING JAYA: Analysts warned that a possible counter bid by Axiata Group Bhd for 28.7%-owned Singapore’s M1 Ltd could lead to constraint to the group’s cash position, but the offerors Keppel Corp Ltd and Singapore Press Holdings may sweeten the deal by lifting the offer price of S$2.06 (RM6.22) per share.
“Should Axiata extend a competing offer for M1, we believe it would not go down well with the market and post downside risk to its share price,” said PublicInvest Research in a note last Friday.
The research house Axiata’s own offer for M1 will be viewed negatively by the market given the potential strain to Axiata’s cash balance as its gross debt-to-ebitda ratio is relatively high at 2.3 times as well as having to focus on transforming M1 in a tough market condition.
“Assuming a counter offer price of 5% above S$2.06, Axiata would have to fork out some RM4.3 billion to acquire the remaining M1 stake that is not already owned.”
PublicInvest Research opined that the offer price is fair considering M1’s prospects are not entirely rosy given a challenging operating environment with rising competition and continuous pressure on margin.
“We reckon that Axiata should accept the offer and divert its focus away from Singapore. It would be more beneficial for Axiata to reinvest the sales proceed (about RM1.6 billion) into other higher growth developing markets in South Asia.”
It said Axiata’s refusal to accept the offer could create some uncertainties over its long-term plan in M1, which contributed about 10% of Axiata’s normalised profit in the second quarter of FY18.
PublicInvest Research said although the premium may not be attractive to Axiata given that it holds the controlling stake as the single largest shareholder, the offer is fair considering an eroding valuation for the telco sector.
“In recent years, competition has intensified considerably owing to the entry of a new player which triggered price war and led to falling revenue and margin for all telco players in Singapore. M1, which is predominantly a mobile services provider, requires extensive business transformation in order to stay relevant in a dynamic telco industry that is moving towards convergence.”
PublicInvest Research is maintaining a “neutral” call on Axiata with an unchanged target price of RM5 a share.
Meanwhile, Kenanga Research does not discount the possibility of Keppel and SPH raising the offer price to get Axiata’s support.
“Based on the past five-year merger and acquisition deals in Singapore’s telecommunication sector, the median of the targeted company’s ebitda multiplies stood at about 8.8 times, thus suggesting that Axiata’s M1 stake could be potentially worth up to S$2.88/share,” it said.
Kenanga Research is maintaining a “market perform” call on Axiata with an unchanged target price of RM4.80.
Axiata’s share price declined 17 sen or 3.6% to close at RM4.56 last Friday, while M1 shares soared S$0.48 or 29.5% to S$2.11.
Source: The Sun Daily