KUCHING: Axiata’s sale of up to 20 per cent of the group’s current stake of 92.5 per cent in Cambodia-based celco Smart Axiata Co Ltd (Smart) has garnered neutral views from analysts.
In a media release posted on Bursa Malaysia, Axiata revealed that the group has entered into a definitive agreement with Mitsui Co Ltd (Mitsui) and its affiliate which will see the parties collectively emerge as a 10 per cent strategic partner in Smart.
“Post-transaction, Axiata will continue to hold controlling and majority interest in Smart with 82.5 per cent stake,” the group said.
“The total transaction consideration of US$66 million is based on an equity value of US$724 million after factoring additional cash received from dividends as part of the transaction structure.
“Under the agreement, Axiata has also granted Mitsui a call option to acquire an additional 10 per cent interest, exercisable within 12 months from the completion of the transaction. The transaction is expected to close by end-May 2017.”
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the consideration for this transaction, said Axiata, was based on an equity value of US$724 million (or RM3.13 billion) after factoring additional cash received from dividends as part of the transaction structure.
The deal also implied an equity value (EV)/historical earnings before interest, tax, depreciation and amortisation (EBITDA) ratio of 5.8-fold, which was in-line with Kenanga Research’s expectation.
“Note that, the total investment cost of Axiata’s 92.5 per cent stake in Smart is approximately RM1.04 billion,” it said.
AmInvestment Bank Bhd (AmInvestment Bank) was neutral on Axiata’s sale of potentially up to 20 per cent of the group’s current stake of 92.5 per cent in Smart to Japan-listed Mitsui and local partners Southern Coast Ventures for cash of US$158 million (RM686 million).
Based on Smart’s financial year 2016 (FY16) net profit of RM278 million and equity value of US$724 million, AmInvestment Bank estimated that the two transactions combined value Smart at an average FY16 price earnings (PE) of only 12-fold and price to book value (PBV) of 1.1-fold.
“However, we understand that the market mean in Cambodia’s under-developed stock market is currently only eight-fold,” the research firm said.
“As a comparison, Axiata currently trades at a much higher FY17 PE of 32-fold and PBV of 2.1-fold versus FBMKLCI’s PE of 18-fold.”
Assuming savings of interest cost at 6 per cent, AmInvestment Bank estimated a minimal contraction of one per cent to FY18F-FY19F earnings.
“There should also be negligible gains at a transaction price slightly above book value,” the research firm said.