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Thursday, December 15, 2011

AXIATA - Dialog Dials Into SunTel (OSK)

Dialog Axiata, an 84.8%- owned subsidiary of Axiata, has proposed to acquire a 100% stake in Sun Tel Limited, a fixed wireless access operator in Sri Lanka. According to media reports, the transaction is to be completed at an enterprise value (EV) of USD33.9m-34.9m, corresponding to a valuation multiple of 3-3.1x FY10 EV/EBITDA. This is subject to the outcome of a confirmatory business valuation and due diligence during the period leading up to the completion of the transaction.

Strategic acquisition. We are fairly positive in that the acquisition would strengthen Dialog’s fixed line telephony and broadband businesses (parked under Dialog Broadband Networks) and provide it with access to SunTel’s lucrative enterprise customer base. The acquisition would enable the group to better compete with Sri Lanka Telecom (SLT), the country’s incumbent fixed line operator which is 45%-owned by Maxis. Based on the indicative valuation comps, SunTel’s EV/EBITDA is tagged at a discount to Dialog’s 9.8x and Sri Lanka Telecom (SLT) of 5.3x. We were not able to confirm other related metrics as SunTel’s financials are not made public although we note from reports that the company is debt-laden. Note that Sun Tel has been up for sale for some time and is not short of suitors, which included leading telcos such as India’s Tata and MTNL, Sri Lanka Telecom (SLT) and Etisalat.
More on SunTel. SunTel is Sri Lanka’s second largest fixed line operator and has a CDMA network. Its fixed telecommunications infrastructure is based on a 382 base station-strong network delivering fixed voice, broadband and data communication services using CDMA, WiMAX and other fixed wireless access technologies.

Maintain BUY on Axiata. Axiata continues to be one of our top big cap picks. Valuation-wise, the stock is trading at an undemanding FY12 PER of 13.7x and 5.5x FY12 EV/EBITDA. It is also seeing renewed interest from foreign investors.

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