The lack of clarity on Axiata Group Bhd's "strategic review" of the company's 28.5 per cent stake in Singapore's M1, as well as unconfirmed reports that plans are afoot to merge Axiata and Telekom Malaysia Bhd, have led PublicInvest Research to issue a neutral call on Axiata, with a target price of RM4.48. (File pix)

KUALA LUMPUR: The lack of clarity on Axiata Group Bhd's "strategic review" of the company's 28.5 per cent stake in Singapore's M1, as well as unconfirmed reports that plans are afoot to merge Axiata and Telekom Malaysia Bhd, have led PublicInvest Research to issue a neutral call on Axiata, with a target price of RM4.48.

In its company update report today, PublicInvest says that Axiata has announced that it has jointly appointed a financial adviser with Keppel T&T (Keppel) and Singapore Press Holding (SPH) to assist with the strategic review. Keppel and SPH own 19.2 per cent and 13.4 per cent stakes in M1 respectively.

"We believe this could potentially result in a divestment of Axiata’s stake in M1, or perhaps a privatisation of M1. M1 has been struggling with a declining profit margin, as competition in Singapore’s telco market becomes keener with the entry of fourth mobile operator, TPG Telecom," PublicInvest said.

The research house wrote that M1 was acquired by TM in 2005 and was then injected into Axiata prior to the spin-off exercise in 2008.

"As at Dec 31, 2015, the book value of Axiata’s stake in M1 amounted to RM1.5 billion, while its market value is about RM1.8 billion. M1 accounted for only 9 per cent of Axiata’s normalised profit in FY16," the report said.

On the matter of the Axiata-TM merger, PublicInvest said that the assumption is that Axiata will provide TM a quick entry into the wireless market.

"We believe that it could take TM at least 3 years to gain a strong footing in the mobile market via P1. Khazanah owns a 26.2 per cent and 37.6 per cent stake in TM and Axiata, respectively. Information remains sketchy at this juncture, until further clarity is available on these corporate deals," the research house said in the note.

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