KUALA LUMPUR: The merger between Axiata Group Bhd's 82.3 per cent-owned Sri Lankan subsidiary Dialog with Airtel suggests positive earnings accretion for the group for the financial year 2025 (FY25).
RHB Research said good synergies are expected from the merger, with the overall impact on Axiata's earnings to be manageable in the medium term.
"We continue to like Axiata, with the earnings rebound and balance sheet deleveraging thesis as key share price catalysts," it said in a note.
The firm maintained its "Buy" call on the stock with a target price of RM3.40.
The merger is expected to be completed by the third quarter of 2024 (Q3 2024) with Dialog's shareholders voting at an extraordinary general meeting.
Post-merger, Axiata's stake in Dialog will be diluted to 72.57 per cent with Airtel as the second-largest shareholder at 10.3 per cent.
The merger will result in an enlarged market share of 64 per cent, which translates to three million additional customers, with good capital expenditure savings/avoidance from combined spectrum resources and removal of duplicate sites.
"Dialog sees a valuation uplift of 53 per cent after taking into account integration costs and synergies."
Dialog will gain 65MHz of spectrum with the largest allocations in the 850/900/1800/2100MHz bands.
RHB Research said the larger spectrum portfolio would contribute to lower cost per gigabyte with more efficient capex spending.
Airtel currently has less than 2,400 sites versus Dialog's 5,500.
"It intends to decommission 1,400 overlapping Airtel sites. With a dual brand strategy adopted, existing customers will keep their current plans.
"Management expects integration capex of 35 million Sri Lankan rupee in FY24-25F on top of business-as-usual capex of 20-25 billion Sri Lankan rupee for FY24," it said.
"There will be a eight per cent uplift in Dialog's revenue from the merger, with management guiding for Airtel's pre-tax earnings and profit after tax to break-even within six-12 months (currently loss-making) of consolidation, mainly from scale synergies," it said.
