Formalises Link Net acquisition
Having previously entered into a non-binding term sheet in Jul 2021, Axiata has formalised the acquisition of 66% of Link Net for MYR2.55b cash. The rationale (convergence) has been well-broked, and deal multiple appears reasonable at c.14x historical PER. Reiterate BUY with an unchanged MYR4.50 TP (SOP-based). Axiata remains on course for a multi-year earnings recovery.
Transaction details
Axiata and its Indonesia subsidiary XL (EXCL IJ, Not rated, CP: IDR3,160) has signed a conditional share purchase agreement to jointly acquire 66.03% of PT Link Net (LINK IJ, Not rated, CP: IDR4,360) for IDR8.72tn (MYR2.55b), or IDR4,800/share. Axiata and XL will each own 46.03% and 20% of Link Net respectively, with Axiata to extend a tender offer for the remaining Link Net shares.
Reasonable multiples
The deal values Link Net at an equity value of IDR13.21tn (MYR3.86b), representing a historical PER of c.14x (Link Net recorded net profit of IDR942b in 2020, and IDR687b in 9M21). In our view, the deal had to be done at Axiata’s level in order to preserve XL’s balance sheet (net debtto-EBITDA would have surpassed 3x if the transaction was undertaken solely by XL). By our estimates, the transaction would raise Axiata’s end 2022 net debt-to-EBITDA by 20-30bps to c.2.0x (up to c.2.1x upon conclusion of the tender offer).
Requires shareholders’ approval
Our earnings forecasts and MYR4.50 TP (derived from a sum-of-parts with each op-co valued on DCF) are unchanged. The deal is subject to regulatory approvals and requires Axiata shareholder approval. Axiata
aims to complete the acquisition in 3Q22, and intends to maintain the listing status of Link Net.