KUALA LUMPUR (March 14): UOB Research sees “ample synergetic opportunities” for Axiata Group Bhd upon completing the acquisition of high-speed fibre broadband network provider in Indonesia LINK given the significant under-penetrated market in the neighbouring country and its strong brand recognition.
UOB Research in a Monday report noted that it recently hosted a meeting with Link Net, which Axiata and XL Axiata intend on acquiring from Asia Link Dewa and First Media.
“We like the company and see ample synergetic opportunities between Axiata and XL Axiata, assuming successful completion of the deal. As of Oct 21, LINK’s last-mile home pass was 2.85 million (95% in Java) with a total of 23 cities and 860,000 subscribers.
“As high speed fibre broadband is significantly under-penetrated in Indonesia (at 17%, the lowest among ASEAN countries), we see ample upside from the proposed acquisition,” UOB Research said.
The acquisition is slated for completion on June 22, and Axiata is expected to undertake a mandatory tender offer that would see earnings lifted by 3-5% for 2023, it added.
“We believe the synergetic opportunities between LINK with Axiata and XL would come from: a) backhaul infrastructure sharing (spectrum fees, sites rental), b) product cross-selling/bundling between XL and LINK, c) centralised procurement, and d) sharing of talent pool/expertise.
“LINK commands a higher-than-average ARPU (350,000 rupiah [RM102.85] per month vs competitor Indihome’s ARPU of 274,000 rupiah per month), mainly due to its focus on rolling out fibre in the urban cities and its targeting of the affluent segment. This, we believe, will also pave the way for XL to upsell its key products,” it noted.
UOB Research said Axiata and XL have on Feb 22 proposed to acquire a 66% stake in LINK at a transaction price of 4,800 rupiah per share and this values LINK at six times forward EV/EBITDA (based on LINK’s FY22 consensus estimates).
Axiata is currently doing due diligence on LINK and we expect the deal to be completed by June 22, the research house added.
UOB Research maintained its "buy" call on Axiata with a target price of RM4.45.
The foreign research house also noted that its current valuation of Axiata “does not include the potential digital banking licence win”.
“Our back-of-the-envelope calculation suggests that winning the digital banking licence can potentially add RM1.4 billion to our SOTP. This translates to a 3% value accretion to our fair value,” it added.
Axiata has partnered with RHB Bank Bhd to bid for a digital banking licence in Malaysia and UOB Research expects an announcement on this “sometime in 1H22”.
Axiata shares were up two sen or 0.53% to RM3.80 on Monday morning.