KUALA LUMPUR: The merger of telco operations of Axiata Group Bhd and Digi.Com Bhd should generate synergies via its enlarged scale, savings on capital expenditure (capex) and procurements as well as cost optimisations, Affin Hwang Capital said.
The firm said Axiata had in June 2021 shared an estimated value accretion of RM8 billion through cost and capex synergies, including savings from network-related capex and expenses.
Nonetheless, Affin Hwang said Axiata had yet to provide granularity on the estimates. Hence, the recent developments might affect the value accretion.
"All in, we expect the capex and opex (operating expenditure) savings during the earlier years to be relatively small. We reiterate our optimistic view on the proposed merger and hence, we are positive on the Malaysian Communications and Multimedia Commission's (MCMC) approval," Affin Hwang said in a note today.
Yesterday, Axiata and Digi announced that they had received the greenlight from MCMC to proceed with the proposed merger of their telco operations.
The merger application for Celcom and Digi was submitted to MCMC in July 2021.
Affin Hwang maintained its earnings forecasts and price targets for Axiata and Digi.
It valued the merged company, Celcom Digi Bhd, at RM44.7 billion.
Affin Hwang also maintained its "Buy" call on Digi with an unchanged target price of RM3.80, and "Hold" call on Axiata with a target price of RM3.40.
"Digi's shareholders are, in our view, a direct beneficiary of this merger arrangement. Elsewhere, we are cautious on Axiata's 2022-2023 earnings outlook due to regulatory risks in several markets, rising interest rates and uncertainties in regional economic growth."
It said these global macro headwinds would gave larger impacts on the frontier markets that Axiata operated in, vis-à-vis Malaysia.
"Although these negatives are partly priced-in, we do not expect Axiata to attract investors' interest during the flight to safety, given its relatively volatile earnings profile (versus the domestic telcos) and lower dividend yield," it added.