• Keppel-SPH could make firm VGO in 3 weeks’ time once IMDA approves.
• VGO is likely to go through. Counter-bid from Axiata unlikely, in our view.
• We downgrade M1 to HOLD with an unchanged target price of S$2.06.

VGO for M1 at S$2.06/share

• In late Sep, Keppel Corp (SGX:BN4) and Singapore Press Holdings (SPH, SGX:T39), via an SPV (“Konnectivity”), made a pre-conditional Voluntary General Offer (VGO) for all M1 shares at S$2.06/share in cash. Konnectivity (and parties in concert) have 33.27% deemed interest.
• Pre-condition for this VGO is regulatory approval from the Info-communications Media Development Authority (IMDA). The VGO is also conditional upon Konnectivity obtaining sufficient acceptances such that it holds more than 50% of M1 at close of offer.

VGO Will Likely Go Through

• If pre-conditions are met, a firm offer could be made in three weeks’ time (from 22 Nov), while the earliest possible close of offer is by 10 Jan 2019. There is no intention to keep M1 listed, if the free float requirement is not met.
• We expect the VGO to go through as
  1. IMDA is unlikely to object,
  2. Konnectivity only needs a minimum acceptance of 17.23%, and
  3. it is not subject to Axiata’s acceptance.
• Other shareholders will accept the VGO, as M1’s share price will likely drop if the VGO is called off, in our view.

Don’t Hope for An Aggressive Counter-bid From Axiata

• Shortly after Keppel-SPH’s VGO, Reuters reported that Axiata is likely to reject the offer and is in talks to team up with private equity/other firms to make its own counter-bid, citing its sources. Unless it is able to find a partner that is willing to fund most of the counter-bid, we think Axiata is likely to accept the VGO offer so as to avoid overstretching its balance sheet.
• Axiata will also prefer to redeploy capital into core markets/ businesses, rather than have it stuck in Singapore (a non-core market), in our view.
• Its initial investments in M1 have also been fully recovered via the last 13 years of dividends. Based on the book value of S$1.94 per share, Axiata will book in a gain on disposal of RM97m.

Downgrade to HOLD with An Unchanged Target Price of S$2.06

• M1’s share price is near our target price and we think Axiata is unlikely to make a counter-bid at a much higher price. Hence, we downgrade M1 from Add to HOLD with an unchanged target price of S$2.06 based on the VGO price.
• M1’s 14.6x FY19F EV/OpFCF is in line with the ASEAN telco average.
• Key downside risk is non-approval from IMDA or insufficient acceptance for the VGO.
• Key upside risk is an aggressive counter-bid from Axiata.

Source: CGS-CIMB Research - 02 Nov 2018