Axiata announced on Tuesday that the group along with Keppel and Singapore Press decided not to proceed further with the strategic review in M1.
KUCHING: The decision by Axiata Group Bhd (Axiata), Keppel Telecommunications & Transportation Ltd (Keppel) and Singapore Press Holdings Limited’s (Singapore Press) to not proceed with the strategic review of their stakes in M1 Limited (M1) has garnered a neutral view from AmInvestment Bank Bhd (AmInvestment Bank).
In a filing on Bursa Malaysia, Axiata announced on Tuesday that the group along with Keppel and Singapore Press decided not to proceed further with the strategic review in M1.
“The majority shareholders have taken into consideration the proposals from interested parties, which despite a favourable level of interest have not met the minimum criteria and parameters as determined by the majority shareholders,” the group said.
“For the avoidance of doubt, no arrangement or agreement with any third party has been reached in relation to each majority shareholders’ respective shareholdings in M1.”
According to AmInvestment Bank, the unsuccessful sale was likely due to low market valuations attached to M1, which registered a 21 per cent year on year (y-o-y) drop in the second quarter of financial year 2017 (2QFY17) net profit as a result of lower average revenue per user amid higher depreciation and subscriber acquisition costs.
“While consensus expects M1’s net profit to decline by seven per cent in FY17F and 10 per cent in FY18F, the telco operator is still expected to remain profitable,” the research firm said.
AmInvestment Bank’s current valuation of M1 is generally in line with the group’s market price.
The research firm noted that M1’s FY17F equity value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA) of 7.7-fold is higher than Axiata’s six-fold but below Singapore Telecommunication’s 14-fold and Star Hub’s 8.6-fold.
“M1’s balance sheet is also healthier at a net debt/FY17F EBITDA of 1.4-fold versus Axiata’s 1.7-fold,” it said.
“Hence, we are not surprised by the reluctance in M1’s major shareholders in selling their stakes below their targeted valuations.”
Nevertheless, AmInvestment Bank viewed Axiata’s struggles in regaining forward momentum in subscribers and average revenue per users (ARPUs) in Malaysia and regionally as underpinning the need for the group’s re-merger catalyst with Telekom Malaysia Bhd (TM).
All in, AmInvestment Bank maintained its ‘buy’ call on Axiata with unchanged forecasts and sum-of-parts-based fair value of RM6.30 per share, on expectations of a value-enhancing re-merger with TM which could reduce the valuation differential with its peers.