KUCHING: Telekom Malaysia Bhd’s (TM) proposal to dispose of up to 191.5 million Axiata Group Bhd’s (Axiata) shares could be seen as a positive corporate exercise that would likely please its investors, opined analysts.
FOREIGN INTEREST: TM can expect strong interest and demand for Axiata's shares during the book-building process, in which Axiata's foreign shareholding level has risen to 16.1 per cent as at end-October from less than 10 per cent a year ago – the highest since it was de-merged from the TM group in April 2008.
On Thursday, the national telecommunications group announced on Bursa Malaysia that it planned to sell these shares, held by its wholly-owned unit, TM ESOS Management Sdn Bhd (ESOS) that represented about 2.27 per cent equity of its interest in Axiata.
Yesterday, it declared the completion of the bookbuilding exercise for 90 million Axiata’s shares at a price of RM4.60 per share; culminating into a raised gross proceeds of RM414 million, gain on disposal of RM209.7 million and an increase in TM’s consolidated earnings per share to 5.86 sen per share.
The corporate exercise left a balance of over 101 million of Axiata ‘s shares held by ESOS after the placement.
“Assuming that all these shares were sold at the five-day VWAP (volume-weighted average price) of RM4.59 per share, TM will raise total proceeds of RM879.4 million – or RM0.25 per share – and book a gain on disposal of RM447.2 million, or RM12.4sen per share,” observed ECM Libra Capital Sdn Bhd’s (ECM Libra) head analyst Bernard Ching in an e-mail yesterday.
TM’s original cost of investment for these shares was RM191.5 million, or RM2.27 per Axiata’s share.
Although TM’s note to Bursa Malaysia mentioned that it had intended to use the proceeds for working capital, capital expenditure, investments or acquisitions; Ching did not discount the possibility that some, or all, of the proceeds could be returned to shareholders in the form of special dividends.
“TM already has an existing dividend policy of returning RM700 million, or 90 per cent of its net profits, whichever is higher. Assuming the group pays a special dividend of 25 sen per share, this could bring total dividends for this year to 44.5 sen per share, bringing to a total dividend yield to an attractive 12.9 per cent; definitely something that its shareholders could look forward to,” he added.
In a similar outlook, OSK Research Sdn Bhd’s (OSK Research) telco analyst Jeffrey Tan pointed out that the market talk of a special dividend should sustain the positive sentiment on TM’s shares.
“Given the group’s strong operational cashflow averaging RM2.5 billion over the next two years, its sizeable coffers of RM3.8 billion and the anticipated steady capex (capital expenditure) of RM2.4 billion comprising both ‘business-as-usual’ and high-speed broadband utilisations; there is likelihood that TM may return the cash to shareholders.
“As such, this would likely bump up its gross dividend yield to 13.1 per cent from six per cent previously,” he outlined in an e-mail.
Tan also anticipated strong demand for Axiata, based on highly increased interest expressed by foreign investors in recent months.
“We could expect strong interest and demand for the shares during the book-building process, in which Axiata’s foreign shareholding level had risen to 16.1 per cent as at end-October from less than 10 per cent a year ago – the highest since it was de-merged from the TM group in April 2008.”
Tan further said, “When Axiata placed out up to 20 per cent of its Indonesian unit XL Axiata’s shares earlier this year, those blocks were snapped up almost immediately. At the moment, Axiata is trading at compelling 12.1 times of its fiscal 2011 earnings – making it the cheapest telco in Malaysia, and among the cheapest in our regional telecoms universe.
“It remains our top pick for exposure to domestic and regional telecoms.”
Meanwhile, AmResearch Sdn Bhd underlined that TM’s move was likely a part of its larger scheme in streamlining its investment.
“After all, Axiata is not a dividend-paying stock, thus there is no incremental income accruing from the investment,” authorised the research house’s managing director Benny Chew, adding that the exercise was not a maiden exercise.
“Just two months ago, TM decided to accept a contract offer on Measat that netted the company cash proceeds of RM252 million, and a profit of RM102 million, stemming largely from investment write-back thereof.
“Notwithstanding this, we do not see any significant impact on TM’s operations from this divestment. Rather, we reckon it would boost its capital structure, given that TM is planning to use the proceeds to finance its working capital – estimated at about RM200 million annually while capex, exclusive of Unifi, is around RM1.2 billion,” said Chew.