KUALA LUMPUR (May 12): CGS-CIMB Research said it is positive on Axiata Group Bhd’s recent business deal with Softbank Corp, and maintained its "add" call with an unchanged target price (TP) of RM4.20.
Softbank Corp will invest RM250 million (US$60 million) for a 23.07% stake in Axiata’s digital marketing subsidiary ADA via the subscription of new shares. Post-deal, Axiata Digital Services (ADS) — in which Axiata owns 96.5% — will remain the largest shareholder of ADA with a 63.47% stake.
Following this partnership, ADA expects to benefit from the unlocking of significant synergistic opportunities.
“The deal values the whole of ADA at US$260 million (RM1.07 billion), or US$200 million on a pre-money basis, which is a 2.2x jump from its US$89 million valuation in 2018 (based on the Sumitomo Corp deal).
“ADS’s 63.47% stake is worth US$165 million (RM679 million).
“Thus, the implied enterprise value (EV) of ADS is US$615 million, with Axiata’s 96.5% stake (balance 3.5% owned by Mitsui & Co) therefore worth US$593 million (RM2.47 billion, or 27 sen per Axiata share), assuming Boost and Apigate’s valuations are still valid.
“This is 19% higher than ADS’s pre-money valuation of US$500 million during the Mitsui deal in May 2019,” said CGS-CIMB analysts Foong Choong Chen and Sherman Lam Hsien Jin in a note yesterday.
They continue to view Axiata’s recent digital business deal positively as it helps to illuminate the value of the assets, but maintain the group’s TP for now until it is closer to the monetisation of ADS via an initial public offering (IPO) or outright sale.
“Axiata’s FY21F EV/OpFCF of 12.9x is 34% (-1.0 s.d.) below its 12-year mean and at a 25% discount to its local mobile peers,” said the analysts.
They added that the key downside risks to the research house’s call included the Celcom-Digi merger deal collapsing as well as more intense competition in its operating markets.
At the time of writing, Axiata had fallen two sen or 0.55% to RM3.64, giving the company a market capitalisation of RM33.39 billion.