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Tuesday, July 31, 2018

Analysts keep forecasts on Axiata following merger

Tuesday, 31 Jul 2018

PETALING JAYA: The effects to Axiata Group Bhd

image:’s earnings are unchanged following the merger between India-based Idea Cellular Ltd, Vodafone India Ltd and Vodafone Mobile Services Ltd, analysts said.

Following this merger, Axiata Group Bhd will be a shareholder in the largest telecommunications provider in India and one of the biggest in the world, the company said earlier in its press release.

AMBank Research said it maintained Axiata’s forecasts for now, pending a teleconference call.

The research house noted that Axiata currently trades at a bargain FY18 forecast enterprise value to earnings before interest, taxes, depreciation and amortisation (ev/ebitda) of six times, which is half the price of Singapore Telecommunications’ 12 times.

“We maintain our ‘buy’ call on Axiata with an unchanged sum-of-parts-based fair value of RM6.20 per share, which translates to an unchanged FY19 forecasted ev/ebitda of 6.5 times, one standard deviation below its three-year average of 7.5 times,” AMBank Research said in its report.

It said further that the merger strengthens Vodafone-Idea’s position to compete in a three-player market with synergistic benefits drawn from the best spectrum allocation and operational efficiencies.

However, the research house added that the merger will also cause Axiata’s equity stake in the merged Idea-Vodafone entity to halve to a non-strategic investment level of 8.2%.

“As forewarned, Axiata has indicated a technical non-cash accounting adjustment estimated at RM1.5bil to RM3bil based on the share price at the point of the reclassification date, which will be included in the group’s second quarter FY18 results next month,” AMBank Research said.

“This is in line with our estimated non-cash provision for diminution in value of RM3bil in the second quarter’s results due to ldea’s depressed share price compared to its current book value of RM5.4bil in Axiata’s accounts,” it added.

Meanwhile, Kenanga Research noted that the merger effectively changes the status of Axiata’s stake in Idea from being a strategic investment to a simple investment.

“Post merger, accounting standards requires Axiata to derecognise and reclassify its investment in Idea from associate to simple investment, as its shareholding in the combined entity is diluted from 16.33% to 8.17%,” Kenanga said.

It maintained its “outperform” rating on Axiata with a lower sum-of-parts driven target price of RM5.00 (from RM5.15 previously).

It further said that it was keeping Axiata’s FY18/FY19 forecast core net profit forecasts unchanged for now, pending the upcoming results review.

But at the same time Kenanga Research said it had lowered its FY18 net loss to RM2.1bil (vs. a net loss of RM500mil previously) after revising our technical impairment expectation to RM3.0bil vs. RM1.4bil previously.

“We maintain ‘outperform’ as the share price still provides more than 10% upside from here.

“We believe the current share price weakness has, to a certain extent, priced-in the write-down on Idea,” Kenanga Research said.


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