A potential merger between Maxis Bhd (Maxis) and Astro Malaysia Holdings Bhd (Astro) has been viewed by analysts as a ‘rational option’ given the competitive landscape.
According to AmInvestment Bank Bhd (AmInvestment Bank), local media reported yesterday that Ananda Krishnan, who owns a 62.4 per cent stake in Maxis and a 40 per cent stake in Astro, is considering a corporate exercise between the two listing entities.
“In our view, a merger would be a rational option given that both Maxis and Astro are facing intense competition on multiple fronts,” the research firm said.
“While Maxis currently endures increasingly competitive plans from rivals, over-the-top players like iflix and Netflix and other pay TV options such as unifi’s HyppTV drive down Astro’s average revenue per user (ARPU) and erode its subscription base, and consequently advertising revenues.”
In its company report, AmInvestment Bank said that a merger will lead to an entity with a market capitalisation of RM53 billion, versus Maxis’s RM44 billion, with a combined net profit of RM2.6 billion.
The research firm noted that given Astro’s lower valuations, the merged entity’s financial year 2018 forecast (FY18F) equity value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA) could slightly drop to 10.3-fold with FY19F price earnings (PE) sliding to 20.8-fold.
“However, Astro’s higher FY18F net debt/EBITDA of 1.7-fold will cause the merged entity’s to rise slightly from 1.3-fold to 1.4-fold.
AmInvestment Bank also expected merger synergies from the convergence of Maxis and Astro’s services.