Axiata Group Bhd (Jan 19, RM4.84)
Maintain outperform at RM4.87 with target price of RM5.79: Axiata is reportedly negotiating to buy a stake in India’s Tikona Digital Networks. According to media sources, the deal may value the wireless broadband provider at US$1 billion (RM3.1 billion), and Axiata may buy new shares in Tikona.
Tikona’s uses Wibro (a WiMAX-based technology) to provide wireless broadband in 38 cities, mainly in northeast and northwest India. In mid-2010, it had 150,000 customers including 6,000 small and medium enterprise users. It is mainly owned by private equity funds. Tikona has the licensed 2.3GHz spectrum in five northern circles, for which it paid US$226 million in a 2010 auction. It should not fetch the US$1 billion speculated price given its small size. Even if the deal materialises, it should not prevent Axiata from raising its dividend payout substantially, as we expect. Maintain “outperform” and sum-of-parts target price.
We think that there are merits to buying a stake in Tikona given the very large potential for broadband in India, where penetration is only 1%. With its 2.3GHz, Tikona can roll out LTE/4G, the most widely-adopted technology for mobile broadband. However, there may be conflict with Axiata’s 20%-owned Idea Cellular which offers mobile voice and data. Also, we think that a US$1 billion valuation for Tikona could be a stretch given the US$1 billion that Reliance Communications paid in mid-2010 for 95% of Infotel Broadband, which has 2.3GHz spectrum in 22 circles. If the deal pans out, Axiata will be the first telecom operator to be a shareholder in Tikona.
A stake in Tikona would give Axiata wider exposure to India’s vast and fast-growing telecom market. This news does not change our view that Axiata will bump up its dividend payout as early as FY11 given its low and falling net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) and RM6.2 billion cash at the holding company level. We believe that any acquisition and capital expenditure will be part-funded by debt. — CIMB Research, Jan 19
This article appeared in The Edge Financial Daily, January 20, 2012.
Maintain outperform at RM4.87 with target price of RM5.79: Axiata is reportedly negotiating to buy a stake in India’s Tikona Digital Networks. According to media sources, the deal may value the wireless broadband provider at US$1 billion (RM3.1 billion), and Axiata may buy new shares in Tikona.
Tikona’s uses Wibro (a WiMAX-based technology) to provide wireless broadband in 38 cities, mainly in northeast and northwest India. In mid-2010, it had 150,000 customers including 6,000 small and medium enterprise users. It is mainly owned by private equity funds. Tikona has the licensed 2.3GHz spectrum in five northern circles, for which it paid US$226 million in a 2010 auction. It should not fetch the US$1 billion speculated price given its small size. Even if the deal materialises, it should not prevent Axiata from raising its dividend payout substantially, as we expect. Maintain “outperform” and sum-of-parts target price.
We think that there are merits to buying a stake in Tikona given the very large potential for broadband in India, where penetration is only 1%. With its 2.3GHz, Tikona can roll out LTE/4G, the most widely-adopted technology for mobile broadband. However, there may be conflict with Axiata’s 20%-owned Idea Cellular which offers mobile voice and data. Also, we think that a US$1 billion valuation for Tikona could be a stretch given the US$1 billion that Reliance Communications paid in mid-2010 for 95% of Infotel Broadband, which has 2.3GHz spectrum in 22 circles. If the deal pans out, Axiata will be the first telecom operator to be a shareholder in Tikona.
A stake in Tikona would give Axiata wider exposure to India’s vast and fast-growing telecom market. This news does not change our view that Axiata will bump up its dividend payout as early as FY11 given its low and falling net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) and RM6.2 billion cash at the holding company level. We believe that any acquisition and capital expenditure will be part-funded by debt. — CIMB Research, Jan 19
This article appeared in The Edge Financial Daily, January 20, 2012.
