Wednesday, April 19, 2017

Axiata Group : Embedding edotco’s valuations BUY

Axiata Group : Embedding edotco’s valuations                                                                   BUY

We maintain our BUY call on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM6.30/share, which translates to a FY17F EV/EBITDA of 6.7x, half of Singapore Telecommunications (SingTel).  Axiata has entered into a share subscription agreement to place out additional 137mil edotco Group shares or 5.4% stake to Kumpulan Wang Persaraan (KWAP) for US$100mil (RM441mil) cash. The inclusion of KWAP brings edotco’s equity private placement to US$700mil while reducing Axiata’s stake in edotco to 62.4% from 68%. This placement to KWAP values edotco’s equity at US$1.5bil based on a FY16 EV/EBITDA of 12.5x, the same benchmark set for the private placement to INCJ and Khazanah back in late December 2016. These valuations are slightly below the FY17F EV/EBITDA average of 16x for the 5 largest listed tower companies, ranked by market capitalisation.

As the listing of edotco has yet to be finalised, we have not assumed any valuation for edotco in our SOP, which could be raised by RM0.75/share or 12% to RM7.05/share. We remain positive on Axiata’s plans to unlock edotco’s value and degear its high net debt/EBITDA of 2x, which will alleviate the group’s additional capex requirement to roll out 4G connectivity and spectrum acquisitions in its multiple geographical operations. Axiata currently trades at a bargain FY18F EV/EBITDA of 6x, way below its 2-year average of 8.1x and less than half of SingTel’s 14x. We continue to be bullish on the stock on expectations of a value-enhancing re-merger with TM, which will continue the re-rating process to bridge the valuation gap with SingTel.

Others :
Petronas Chemicals Group  : New INA production mitigates cyclical swings                           HOLD
Press Metal : Shiny outlook priced to perfection                                                                                HOLD
Malaysian Pacific Industries : Smartphone consumers seen holding off spending               HOLD

Sime Darby : Repurchases US$800mil sukuk                                                                                         HOLD

Press Metal,Seacera Group,Tex Cycle Technology,Mudajaya Group

Malaysia : A healthy labour market

REITs : AmanahRaya REIT’s fund size projected to double
Property Sector : S P Setia to develop RM1.4bil luxury condo in Singapore
Infrastructure Sector : Feasibility study on Kulim airport to conclude in next few months

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