Axiata’s Decision To Sell Its Stake In Indonesia’s XL Axiata Has Elicited A Tepid Response

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Axiata Group Bhd’s share price remained unchanged following the group’s announcement that it will sell a 5% stake in its Indonesia-listed subsidiary PT XL Axiata Tbk (XL) to Ferrymount Investments Ltd (FIL) for 1,440 billion rupiah (RM423.5 million) or 2,700 rupiah per share.

Axiata’s shares fell three sen or 0.74 percent to RM4 in early Tuesday trade, with 238,400 shares traded.

Axiata’s share in XL will be reduced to 61.5 percent from 66.5 percent now.

JF Apex Securities, in a report on Tuesday, expressed optimism about the agreement, stating that it will enable XL and Axiata to collaborate with FIL, Procap Partners Ltd, and Tiga Investments Pte Ltd and leverage their expertise and experience in digital and technological services.

“The divestiture may give XL with access to Procap and Tiga Investments’ commercial partnerships, putting XL on a more solid operational footing,” the research firm noted, stressing that Tiga Investments is an active investor in the technology industry and in Indonesia.

Additionally, the leaders of Procap and Tiga Investments have considerable knowledge, experience, business relationships, and investments in Indonesia and the global financial markets, according to JF Apex Securities.

“By using Procap’s and Tiga Investment’s connections to the Indonesian digital ecosystem, XL will be able to participate actively and further develop its digital and value-added services for its present 58 million customers,” it added.

According to JF Apex Securities, the disposal will increase Axiata’s total cash to RM7.4 billion and reduce its gearing to about 1.8 times net debt/earnings before interest, taxes, depreciation, and amortisation (EBITDA), providing the disposal is paid in cash.

“We are retaining our FY21 earnings per share (EPS) prediction because the transaction will have a minimal impact on [Axiata’s] profitability,” the research house stated, reiterating its “buy” recommendation on the stock with an RM4.53 target price (TP).

Meanwhile, PublicInvest Research stated that the disposal is not likely to have a meaningful impact on its forecast core profits and sum-of-the-parts-based valuation.

“While the group intends to raise approximately RM423.5 million, we think that a substantial portion of the proceeds will be reinvested in strengthening Malaysia’s domestic telecommunications infrastructure network,” it stated. The research house maintains a “neutral” rating on Axiata with a target price of RM4.

Published by Zack Baharum

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