KUALA LUMPUR: Axiata Group Bhd's proposed merger in Indonesia is likely to post minimal potential earnings impact, of less than two per cent, to the group, said analysts.
Axiata Group's (Axiata) subsidiary, XL Axiata (XL) has formally announced its proposed merger with Smartfren Telecom (Smartfren), valuing the merged entity at an enterprise value of IDR104 trillion or US$6.5 billion.
The proposed merger is not a surprise and has been widely anticipated by the market.
Following the announcement of a non-binding MoU in May, Public Investment Bank Bhd (PublicInvest) said Axiata has kept to its deadline to finalise the proposed transaction by year-end.
"Although the proposed merger is expected to create synergies by bringing together combined scale, competencies and market knowledge, potential earnings impact to Axiata is likely to be minimal, estimated to be less than two per cent," it said in a note.
Currently, there are four key mobile operators in Indonesia with XL and Smartfren being the third and fourth largest, respectively.
Post-merger, PublicInvest said the sector will consolidate into three major players.
"We estimate that XLSmart is not likely to unseat the second- largest player, Indosat Ooredoo, though they both could hold comparable market share of 27 per cent and 28 per cent, respectively (Telkomsel remains the leader with ~44 per cent market share)."
"While we believe this would solidify XL's market position and there would be synergies to be reaped (estimated at US$300-400 million a year), these benefits are not likely to be felt in the immediate term given the time and cost of the integration process," it said.
Meanwhile, RHB Research said the merger with Smartfren marks another significant milestone in Axiata's portfolio optimisation strategy with proceeds from the partial monetisation of XL to be used to pare debt.
Assuming the merger was in effect, the firm said nine months of 2024 (9M24) net debt/Ebitda would decline to 2.48 times from 2.59 times while gearing will improve from 1.21 times to 0.77 times.
"Axiata's market valuation post-merger will also see a net US$0.2 billion uplift as its lower stake post-merger is more than offset by US$475 million proceeds from the sell-down in XL to Sinarmas. "9M24 net profit should improve to RM1.22 billion from RM1.17 billion despite the deconsolidation of XL's earnings post-merger (as a 34.8 per cent associate), thanks to lower interest charges from lowered debt.
"Overall, we maintain a Buy on Axiata with a target price of RM3.40. We continue to like the stock for its improving risk-reward with balance sheet deleveraging and operational improvements as share price catalysts," it added.