,Kenanga research: “Should the merger go through,we believe that having one less competitor allows operators to better compete in more sustainable ways via evolving cost efficiencies,and therefore, we are positive on the eventuality of a successful deal.”
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AFTER Digi.com Bhd and Axiata Group Bhd’s subsidiary Celcom Axiata Bhd announced their merger plan to become the country’s largest telecommunications company, both stocks soared significantly.
Investors seem to like the idea of the merger, especially with the changing landscape of the telecommunications industry where players are losing revenue to the over-the-top (OTT) service providers such as instant messaging service WhatsApp and online TV Netflix.
On Thursday, Axiata’s wholly owned unit Celcom and Norway-based Telenor’s 49% unit Digi announced their plan to merge to become the country’s largest telco provider Celcom Digi Bhd (CDB).
Analysts are mainly positive on the proposed merger for the long-term sustainability of the telco industry and expect it to be completed in 2022.
Interestingly, while the merger would see both Axiata and Telenor having equal stakes of 33.1% each in CDB, AmInvestment Bank Research (AmInvest) reckons that Digi could benefit more than Celcom from the exercise.
“Assuming no synergies from the merger, we estimate that Digi’s forecast financial year 2022 (FY22) earnings per share will increase by 5%, while Axiata’s will decrease by 10% as Digi’s equity appears to be valued 67% above Celcom’s from the share and cash exchange. Hence, we view that the merger appears to favour Digi more than Axiata, ” it says in a report.
While both parties are still negotiating on the merger arrangement, AmInvest expects that the exercise could involve Digi acquiring Axiata’s wholly owned Celcom via a share swap together with RM2bil in cash, of which RM1.7bil will come from new Digi debt and RM300mil from Telenor.
Both Axiata and Telenor will have equal stakes of 33.1% in the merged entity, with the balance being held by Digi’s minority shareholders.
PublicInvestment says that the merged entity would have synergies in terms of the sharing of resources, network optimisation and lower procurement cost.
“Given the trend where the industry is experiencing margin compression and lower profitability with the need to continuously invest in new technologies to cater to a growing demand for data and speed, the merger should help to ensure long-term sustainability, ” it says.
It estimates that CDB’s market capitalisation could range between RM48bil and RM54bil, based on a combined net profit of RM2bil after debt.
“Our preliminary estimates indicate that Digi’s assets are being given a higher valuation compared to Celcom’s.