March 20, 2017 8:06 pm JST

Axiata shares rise to five-month high on M1 stake review, merger report

KUALA LUMPUR (NewsRise) - Shares of Axiata Group surged to a five-month high on Monday as investors cheered the company's move to review its stake in Singapore unit as it seeks to sharpen focus on operations that promise healthier profit.

Meanwhile, Axiata's associate company Idea Cellular agreed on Monday to merge its operations with the U.K's Vodafone Group that would create India's largest telecom business. On Friday, Axiata said it is reviewing its stake in M1 with other major shareholders of this Singaporean subsidiary.

The stock rose to 5.16 ringgit, the highest since October 24, before ending Monday 2.2% higher at 5.08 ringgit. Axiata, Malaysia's largest telecommunications company by revenue, also reportedly hired Goldman Sachs to explore potential merger with state-controlled fixed-line operator Telekom Malaysia, local newspaper The Star reported Saturday, citing sources.

Analysts said the recent moves appear to be part of Axiata's broader strategy to rationalize non-performing businesses as the company cut its dividend payment target for the next two years after a slew of weak quarterly earnings.

"Axiata aims to be No. 1 or a strong No. 2 in all its footprints by 2020," said UOB Kay Hian's analyst Chong Lee Len. That requires economies of scale, she said, noting that Axiata's Celcom in Malaysia and Singapore's M1 rank third in their respective markets.

Axiata owns some of the largest mobile phone network companies in Southeast Asia and South Asia, and counts more than 300 million subscribers in total. The company's XL Axiata is the Indonesia's second-largest mobile telephone service provider, while Ncell is Nepal's biggest.

In Singapore, Axiata, Singapore Press Holdings and Keppel Telecommunications & Transportation have jointly hired Morgan Stanley as their financial adviser to assist with a "strategic review" of their shareholding in M1.

"The sale of the 61.1% combined stake would be more attractive to potential buyers that want a controlling stake," said CIMB Investment Bank's analyst Ngoh Yi Sin.

Back in Malaysia, a potential merger between Axiata and Telekom Malaysia would help the enlarged company to offer a so-called quad-play services that combines broadband Internet access, television, telephone, and wireless service provisions.

"One of the driving reasons behind a merger, in our view, are aspirations to provide a converged product offering," said TA Securities' analyst Paul Yap. "With industry trends moving towards convergence, we believe a potential product bundle will create an interesting brand proposition."

Shares of Axiata Group have lost more one-third of its value in 2016, making it one of the worst performing benchmark stocks in Malaysia last year, as earnings tumbled tracking foreign exchange losses. The stock has gained 7.6% until now this year.

Axiata's net profit declined 80% to 504.25 million ringgit from 2.55 billion ringgit a year earlier largely due to foreign translation losses against the U.S. dollar, although revenue grew 8.5% to 21.57 billion ringgit from 19.88 billion ringgit in 2015 thanks to contribution from Ncell.

--Jason Ng

Asia300

Axiata Group Bhd.

Malaysia

Market(Ticker): KLS(6888)
Sector:
Industry:
Communications
Wireless Telecommunications
Market cap(USD): 10,131.08M
Shares: 8,973.45M
Asia300

Idea Cellular Ltd.

India

Market(Ticker): BOM(532822)
Sector:
Industry:
Communications
Wireless Telecommunications
Market cap(USD): 4,843.78M
Shares: 3,603.49M

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