PETALING JAYA: Shares of Axiata Group Bhd and Digi.com Bhd saw heavy sell-off today after the termination of merger talks to create the largest telco player in the region.
Axiata was the top loser on Bursa Malaysia today, with its share price plunging as much as 87 sen or 17.8% to RM4.01 before closing 77 sen or 15.8% lower at RM4.11 on 41.06 million shares done, wiping off RM7.03 billion in its market capitalisation.
Digi, meanwhile, sank as much as 59 sen or 12.1% to RM4.30. At market close, it was down 29 sen or 5.9% to RM4.60 with 18.22 million shares changing hands. A total of RM2.26 billion of the telco’s market capitalisation was shaved off.
Last Friday, Axiata and Digi’s parent company Telenor ASA announced that they had ended four-month long discussions on a possible merger for the two telcos’ operations in Asia, due to some “complexities” involved in the proposed transaction. However, both parties do not rule out the possibility of a future transaction.
With the latest development, Affin Hwang Capital projected that in the absence of merger & acquisition (M&A) driven growth, Digi’s long-term growth rate to be similar to Maxis’ at 1% from 1.5%, previously.
As for Axiata, the research house expects the group to trade at a discount with a lower EV (enterprise value)/ebitda (earn-ings before interest, taxes, depreciation and amortisation) multiple of 10 times for Celcom from 12 times.
“Without a business combination, we expect Celcom’s business performance to continue to lag Maxis and Digi and hence, the lower valuation multiple,” it said in a report today.
AmInvestment Bank Research expects a re-emergence of mobile wars from the failed merger.
“Competition will remain just as intense as over the past four years, we expect continuing pressure on ARPU (average revenue per user) and subscriber trajectory, even though 2Q19 subscribers have recently flipped to a net sequential accretion of 77,000 after four years of continuous contractions,” it said.
Hong Leong Investment Bank Research also shared the view that competition intensity to remain with the five mobile network operators.
“Besides that, rivalry will also be focused on spectrum allocation, particularly on the prized 700MHz as MCMC intends to split it only into 4 blocks of 2×10MHz.”
It said Axiata will revisit telecom infrastructure services subsidiary edotco’s monetisation plan, and did not rule out other avenues and options for the group’s digital businesses, besides an initial public offering.
MIDF Research is of the view that mobile services providers would need to continue to provide attraction service value proposition to retain their respective market share.
The research house said this would mean a dilution in profit margin, and having an effective cost management strategy in place is essential to defend the profit margin.
Meanwhile, PublicInvest Research is maintaining its “neutral” rating on Digi but is downgrading Axiata to “trading sell” from “neutral” as its RM4.00 valuation implies a downside potential of 18%.