CFA Society Singapore
SINGAPORE (Sept 28): RHB Research and CGS-CIMB Securities say Keppel Corp and M1's $2.06 per share valuation of M1 is fair.
To be sure, M1’s share price has de-rated by a significant 30% on worries over escalating threats posed by new players in the market over the past 18 months.
The offer price values M1 at $1.92 billion, 23% above RHB's previous DCF-derived target price of $1.68. On the other hand, CGS-CIMB says shareholders should accept the offer as it is at a "26% premium to the last traded price and 29% premium to the three-month volume weighted average price (VWAP)".
In addition, adding M1’s 2Q18 net debt of $395 million translates into 9.1x FY19 EV/EBITDA, against the average Asean-4 EV/EBITDA of 8x, and M1’s historical average EV/EBITDA of 8.3x.
Meanwhile, CGS-CIMB expects the offer to go through as IMDA is unlikely to object, given the transaction will not alter the competitive landscape. In addition, Konnectivity, the offer vehicle, only needs a minimum acceptance of 17.23% in order for it and parties in concert to hold more than 50% of M1 at close.
Given that the parties acting in concert collectively own 33.27% of M1, RHB sees a strong likelihood of the offer becoming conditional with only 17% additional shares required.
But will 28.7% shareholder Axiata accept the offer?
RHB noted that Axiata did not proceed to sell its stake during last year’s strategic review when M1's share price was $2.10-2.30, as bids received did not met its criteria.
However, Axiata may now have a better idea of M1's market value through that exercise and with Keppel SPH joining forces, it may reconsider its position.
In a separate announcement, Axiata said it would continue to evaluate all options where offers made reflect the future value of M1, including an acceptable control premium that is benchmarked on precedent transactions in Asean.
"We upgrade M1 to 'add' with a revised target price of $2.06 based on the VGO price, as
we believe the transaction is likely to go through," says CGS-CIMB analyst Choong Chen Key.
"Maintain 'neutral' with higher target price of $2.06 from $1.68, 26% upside," says RHB.
As at 12.11pm, shares in M1 up 46 cents at $2.09.