Axiata Group : Additional M1 stake could be EPS accretive BUY

STOCK FOCUS OF THE DAY

Axiata Group : Additional M1 stake could be EPS accretive            BUY

We maintain our forecasts and BUY call on Axiata Group (Axiata) with an unchanged sum-of-parts (SOP)-based fair value of RM6.45/share, which implies a FY16F EV/EBITDA of 7x – half of Singapore Telecommunications Ltd’s present 14x. Axiata’s chief executive officer Tan Sri Jamaludin Ibrahim was reported by newspapers as saying that the group would be interested in raising its current equity stake of 28.5% in M1. This development follows reports that Keppel Corp was considering selling of its 19.2% equity stake in M1 as part of its strategy of disposing of non-core operations. M1 is one of the three major full service communications providers in Singapore. It offers a suite of mobile voice-and-data communication services over its 2G/3G/3.5G/4G/LTE-A network, including international-call services to both mobile- and fixed-line customers. Currently the third largest mobile operator after Singapore Telecommunications and Star Hub, M1 has 2mil customers, of which postpaid accounts for 62% and prepaid the remaining balance. Its market share in Singapore is 23.5% overall, for postpaid 24.6% and prepaid 21.8%. M1, which has a market capitalisation of S$2.4bil (RM7.1bil), currently trades at a FY17F PE of 13.8x, much lower than Axiata’s 23x. As such, we estimate that an additional 10% equity stake in M1 could lead to an FY17F EPS accretion of 2% to Axiata. M1’s dividend yields of 6% are also more favourable vs. Axiata’s 3%. However, there could be an EV/EBITDA erosion, as M1, which has a lower level of depreciation, currently trades at a higher 7.8x vs. Axiata’s 6.4x.

For the Malaysian mobile market, we expect the industry to continue to raise the ante as

competition continues to elevate against the backdrop of a matured domestic market and declining voice revenues. For Axiata, we expect the recent commencement of Nepal-based NCELL to mitigate the margin pressures in Malaysia while Celcom’s domestic roaming arrangement with TM will enable the group to offer a more converged and unified package to customers. Axiata currently trades at a bargain FY17F EV/EBITDA of 6x, below its 2-year average of 8.6x. Additionally, dividend yields are attractive at 3.8%.

Others :

Banking Sector : 2Q16 Earnings Wrap: Earnings continue to be subdued with elevated provisions               NEUTRAL

ECONOMIC HIGHLIGHTS

US : Growth Supportive Policies & Fiscal Expansion Remains

Euro : Uncertainty Remains

NEWS HIGHLIGHTS

Kerjaya Prospek : Kerjaya Prospek gets RM146.7mil contract from Eco World

Air Asia X  : AAX seeks to grow ancillary income to RM150 per pax by 2017

Axiata Group : Axiata signals interest in raising stake in Singapore’s M1

Eversendai Corp : Eversendai secures RM1.5bil new contracts