The biggest news to come of corporate Malaysia last week must have been the sale of NCell by Axiata, Maybank IB have given its view on the disposal saying while the consideration is not material in its view, Axiata will be indemnified against Nepalese tax claims going forward.
The house views the overall risk-reward as being positive, with sequential net profit recovery and asset monetisation (leading to balance sheet repair) being potential re-rating catalysts.
For context, the group has concluded its disposal of Reynolds (which owns 80% of Ncell) to Spectrlite UK (owned by Satish Lal Acharya) for USD50m plus a share of Ncell’s forward distribution until 2029. Axiata will be indemnified against existing and future Nepalese tax claims in relation to Ncell. Recall Axiata had recently announced its intention to exit Nepal, with Ncell already being impaired and reported as discontinuing operations in 3Q23.
The regional telco had acquired Reynolds for USD1.365b in 2016, and had settled c.USD421.9m in capital gains tax (acknowledged as full and final then) in 2016-2020. Ncell was however further assessed in January 2021 for another c.USD433.6m, with collection being suspended by an interim court order. The Large Taxpayer Office has to date, not withdrawn the assessment despite Axiata’s success with international arbitration. In addition, there is the possibility of an expropriation of Axiata’s stake in Ncell by the government, with Ncell’s mobile license expiring in 2029.
With the latest development, Maybank IB is revising its FY23/24/25 net profit forecasts by +9%/-17%/-10% respectively as it removes Ncell from its forecasts and reflect the updated CelcomDigi forecasts. The house also notes that Axiata’s current market cap is crudely equivalent to the market value of its stakes in CelcomDigi and XL.
