KUALA LUMPUR: Axiata Group Bhd's share of profit from its 33.1 per cent stake in merged entity Celcom Digi Bhd (CBD) as well as an additional income of RM60 million raises its Malaysian operating companies' financial year 2022 (FY22) profit by 14 per cent, Kenanga Research said.
The firm said based on unlisted Celcom Axiata Bhd's gross earnings forecast of RM2.6 billion in FY22, the planned merger with Digi.Com Bhd valued Celcom at 9.4x forward enterprise multiple.
Axiata and Norway's Telenor ASA on Monday announced that they had sealed the definitive agreement to merge Celcom and Digi that will create CDB.
Given Celcom's relatively lower profitability, estimated at 40 per cent of gross earnings margin, Kenanga Research believes the 9.4x is a fair multiple.
"We see this as a good opportunity for Axiata to partially realise its Celcom investment at a decent valuation," it said in a note today.
Besides that, Kenanga Research said Celcom and Digi might incur one-off transition costs for early termination of contracts with existing vendors and infrastructure suppliers.
This may include early termination of Celcom's contracts with edotco Group Sdn Bhd.
"While Celcom may terminate certain agreements with edotco on sites where Digi also has a presence, we believe Celcom will renegotiate existing contracts on continuing sites as CDB," it said.
Kenanga Research has raised Axiata's FY22 dividend per share (DPS) to 10 sen from nine sen, implying a dividend payout ratio of 76 per cent.
"While we believe the higher dividend is achievable with or without the merger, we believe Axiata's 33.1 per cent stake in CDB strengthens its ability of achieving that.
"Applying our new Axiata's FY22E dividend payout ratio of 78 per cent, we estimate Celcom to contribute 5.6 sen DPS to Axiata's nine sen DPS in FY22.
"Assuming a dividend payout ratio of 85 per cent for CDB, we estimate Axiata's 33.1 per cent stake entitles it to a dividend of RM582 million, translating to DPS of 6.4 sen, raising Axiata's DPS by one sen," it said.
Kenanga Research has maintained its "outperform" call on Axiata with a higher target price of RM4.45.