Axiata’s Link Net deal to boost growth potential


AXIATA Group Bhd proposed acquisition of 66% stake in Indonesia’s PT Link Net Tbk offers growth prospects given Indonesia’s large population base with 58% under the age of 30 and online penetration remains low. 

The proposal is still in the early stage of discussion. It remains uncertain whether this would lead to a definitive agreement. 

“In the absence of key information such as purchase consideration, valuation, mode of payment and etc, we are unable to assess its impact on Axiata at this juncture,” Public Investment Bank Bhd analyst Eltricia Foong stated in a report yesterday. 

Axiata on last Friday announced that it and its subsidiary, PT XL Axiata Tbk, had entered into a non-binding term sheet with Asia Link Dewa Pte Ltd and PT First Media Tbk to facilitate discussions for a potential acquisition of over 1.81 billion shares representing 66.03% of the entire issued and paid-up capital of Link Net Tbk from two sellers. 

The telco group noted that there will be a change in control in Link Net if the definitive agreement is signed. 

Subsequently, Axiata and/or XL will be required to conduct a mandatory tender offer to purchase the remaining shares in Link Net. 

Link Net is engaged in the provision of telco services through a broadband communication network including distribution of television programmes and high-speed Internet in 23 cities across Indonesia. 

It has a market value of Rp13.2 trillion (RM3.9 billion) and posted an annual net profit of Rp941.7 billion for the financial year 2020. 

Foong stated that the historical five-year earnings compound annual growth rate of Link Net appears to be decent at 9% between 2015 and 2020, with a 15% annual growth in average revenue per unit. 

She noted that Link Net is one of the leading high-speed broadband providers in Indonesia with 2.7 million home passes. 

“Competition in the fixed broadband market is intense but only Link Net and another player (PT Telkom) currently operate with scale,” she added. 

Link Net posted an Ebitda and net profit margin of 59.4% and 23.3% respectively in its first quarter of 2021. 

“The key growth driver for Link Net hinges on Indonesia’s large and young population base, growing affluence and expanding internet user base,” Foong noted. 

The company is currently owned by a private equity firm and a subsidiary of the Lippo Group conglomerate. 

Axiata shares fell two sen to RM3.71 yesterday, valuing the company RM34.03 billion. 

Besides the proposed transaction involving Link Net, Axiata had in June announced that Telenor Asia Pte Ltd and Digi.Com Bhd have concluded the legality of the proposed merger between Celcom Axiata Bhd and Digi, potentially forming Malaysia’s largest mobile operator. 

The merged entity, known as MergeCo, will serve an estimated 19 million customers with revenue of RM12.4 billion, Ebitda (RM5.7 billion), profit after taxation (RM1.9 billion) and free cashflow (RM4 billion). 

Upon completion, Axiata and Telenor will be equal partners with a 33.1% ownership stake each in MergeCo and the entity will continue to be listed on the local bourse. 

With a target to be among the five largest firms listed on Bursa Malaysia in terms of market capitalisation, MergeCo is valued at a combined pre-synergy equity value of close to RM50 billion, taking into account the issuance of new ordinary shares in Digi. 

Initial estimates have indicated a potential value accretion through cost and capital expenditure synergies of around RM8 billion on a net present value basis.