PETALING JAYA: Shares of Axiata Group Bhd and Digi.com Bhd rallied as much as 18.3% and 11.5% on positive sentiment towards their merger deal.
Axiata’s share price surged as much as 74 sen to a seven-month high of RM4.78 before closing 60 sen or 14.9% higher at RM4.64 on 38.17 million shares changing hands.
Digi, meanwhile, soared as much as 52 sen to RM5.04, the highest in the past one year. At market close, the stock gained 28 sen or 6.2% to RM4.80 on 36.88 million shares done.
On Monday, Axiata and Digi’s parent company Telenor announced that they are in the talks to merge Asian operations.
While this deal is positive for both Axiata and Digi, AmResearch expects the potential synergies and cost savings to have a higher boost to Axiata, which currently trades at an EV (enterprise value) /Ebitda (earnings before interest, taxes, depreciation and amortisation) of only 5 times, less than half of Digi’s 12 times.
“Additionally, the merged entity’s expanded financial leverage comes from Digi’s low gearing which could subsequently impact the merged entity’s dividend policy,” it said in a research note today.
HLIB Research concurred, saying that Axiata is expected to gain more given that the proposed corporate exercise allows it to crystalise the true value of its assets.
As for Digi, it opined that the consolidation with Celcom may lead to short-term indigestion due to the huge duplications in terms of assets (towers, infrastructure) as well as human capital.
“We do not discount that the merger may lead to asset impairments and one-off restructuring costs. However, we are still positive on the amalgamated Digi-Celcom over the long run.”
However, AmResearch is uncertain if the Malaysian Communications and Multimedia Commission and current political regime would approve this proposal given that a merger would reduce the level of competition at the expense of consumers’ choice and pricing alternatives.
“We reiterate our view that such an extensive restructuring exercise could be hindered by the respective country’s regulatory oversight.”
HLIB pointed out that Malaysia is the only overlapping market in this proposed deal. The combination of Celcom and Digi will lead to a largest telco with revenue and subs market share of 35% and 47%, respectively and potentially attract scrutiny from the perspective of anti-competition. Together, they will also hold 43% of the operating TDD airwave in the market.
“Axiata may end up with conflicting stakes in Grameenphone (via MergedCo) and Robi who are top one and two competitors in Bangladesh. Other Robi shareholders, namely Bharti (25% stake) and NTT Docomo (6.3% stake), may not favour this scenario.”
HLIB is maintaining a neutral call on the telco sector, adding that the telco sector remains stable supported by resilient domestic demand with dependable dividend yield being a plus point in a volatile market.
PublicInvest Research has upgraded Digi to “trading buy” as it believes the deal would be positive to DiGi, while Axiata is kept “neutral”.
Nonetheless, the research house said the merger between Celcom and DiGi is negative to Maxis as the merged unit is expected to overtake Maxis to become the leader in Malaysia’s mobile segment.
The merged entity will be an unlisted arm though there are plans for a public offering within the next few years.
“In our opinion, DiGi and Axiata should ultimately be privatized once the merged entity is listed,” said PublicInvest.
