RM2.8b DEAL: It’s short-term pain for long-term gain for Axiata, say analysts
AXIATA Group Bhd has made a "savvy" move in buying "a short-term pain for long-term gain" in Indonesia, analysts say.
Referring to Axiata's RM2.8 billion acquisition of PT Axis Telekom Indonesia (Axis) announced on Thursday, they said the move gives Axiata, through unit PT XL Axiata Tbk (XL), access to a bigger slice of the Indonesian telecommunications market.
MIDF Research said the deal, which is worth US$865 million and a token sum of US$100, will result in XL obtaining additional blocks of 1,800MHz and 2,100MHz spectrum. This will further strengthen its position in Indonesia.
"The company will add another 13.7 million to its existing 54 million subscribers and raise its market position by one notch behind market leader, Telkomsel," it said in a note yesterday.
The research house describes the hefty price as "short-term pain for long-term gain".
"In its financial year ended 2012, Axis recorded a net loss of RM1.5 billion and net liabilities of RM1.8 billion. Assuming similar amount of loss in financial year 2014, Axiata's portion of the net loss would amount to RM948 million.
"In addition, Axiata's interest income will be reduced by RM84 million due to reduction in cash to fund the acquisition."
This is expected to adversely affect Axiata's consolidated earnings, it added.
However, according to MIDF Research, Axis is expected to break even after three years.
Naveen Mishra, industry principal for telecom for Asia Pacific at Frost & Sullivan GIC Malaysia Sdn Bhd, sees Axiata's move as savvy.
This is given the fact that mobile users will eventually be migrating to smartphones, which consume plenty of data, generating huge revenue.
"Indonesia's market is competitive and now XL can use Axis' spectrum for leverage. The profitability is good when you have a sizeable number of subscribers that use your services," he said.
Naveen describes Axiata's experience in successfully integrating businesses of Hello and Smart in Cambodia as well as Suntel and Dialog in Sri Lanka as invaluable.
"Integration of businesses can be challenging. Axiata has done it in the past in Cambodia and in Sri Lanka, and so it is definitely up to the task," he said.