#Hot Stocks* Axiata falls on profit taking

KUALA LUMPUR (Dec 14): Axiata Group Bhd fell as much as 2.5% on Friday as investors took profit following gains in the shares of the mobile telecommunication network provider this week.

At 4.16pm, Axiata, the eighth most-active stock, was traded at RM6.50 with some 12 million shares done after falling as much as 16 sen to RM6.37 earlier. The stock which closed at RM6.19 last Monday had risen to RM6.53 on Thursday.

The stock's price has surpassed analysts' fair value. HwangDBS Vickers Research Sdn Bhd analyst Chin Jin Han said the research firm has a target price (TP) of RM5.80 with a "Hold" call for Axiata shares. In a note, Chin said HwangDBS' TP is "below (consensus estimates) on less-aggressive margin expansion" in Axiata.

Chin's note was issued following news that Axiata is acquiring Cambodian rival Latelz Co Ltd for US$155 million (RM473 million) cash. Axiata said the move will spur the company to top spot in terms of retail presence in the Indochina nation.

The firm said its wholly-owned subsidiary Axiata Investments (Cambodia) Ltd has signed a sale and purchase agreement with Cyprus-based Timeturns Holdings Ltd to purchase the entire stake in Glasswool Holdings Ltd which will, in turn, own 100% of Latelz.

Axiata which has existing operations in Cambodia under the "Hello" brand, intends to merge its current unit with Latelz into a single entity. Axiata will eventually have a controlling 90% stake in the company, it said.

HwangDBS' Chin said while the combined entity enables Axiata to establish a firm leadership in a market primed for healthy growth, the Cambodian operation's relatively small earnings before interest, taxes, depreciation, and amortisation (Ebitda) base is unlikely to materially increase overall group earnings in the near term.

According to Chin, the transaction is priced at an enterprise value / Ebitda ratio of about 10 times, a valuation which is deemed high. Chin said this is because the transaction has factored in a strong market position, greater scale, apart from growth opportunities and synergies for the merged entity.

"We view the acquisition with a positive-bias," Chin said.

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