DTAC shares surge on reports that Telenor is looking to divest

Shares of Total Access Communications Plc (DTAC) rose sharply in morning trading Thursday amid reports that majority stakeholder Telenor SA was looking to exit its position.

At the midday break the stock was up nearly 7 per cent from Tuesday’s closing price of 32 baht to 34.25 baht. It was the most-traded equity of the morning on the Stock Exchange of Thailand (SET), with a total trade value more than 50 per cent higher than the next most-trade, Kasikorn Bank Plc (KBANK).

The surge followed a report published Monday by London-based business intelligence service TMT Finance. “Six sources told TMT Finance that Telenor is considering selling its Thai mobile operating unit Total Access Communications Plc, known as dtac [BKK: DTAC], and is sounding out interest from potential buyers,” the report said.

Norway-based Telenor owns about 65 per cent of DTAC. It is looking to exit the market at a valuation of 2 billion US dollars for its stake, reports said.

DTAC shares rose in response Telenor reports, and also on the news that the company was going to go ex-dividend with a payment of 1.05 baht a share for its operations in the previous quarter.

DTAC has not commented on the possible deal, while a message to Telenor chief executive Sigve Brekke was read but not answered.

Although it is not the first time such discussions have arisen for DTAC, this time there are grounds for some kind of deal as DTAC has become the third player in the market, from the second when Telenor had entered into the partnership with DTAC’s founding Bencharongkul family in 2005.

Sigve was the key person to help drive the growth of the business and its marketing efforts before moving to lead Uninor in India, which turned out to be a disaster and Telenor had to exit the market.

Ever since the exit from India, Telenor has been gradually taking the path of exiting various businesses and just earlier this month sold its entire stake in Telenor Myanmar to Lebanon-based M1 group for a mere $105 million.

In June Telenor also partially exited the highly competitive Malaysian market when it merged its local operations Digi, with Axiata Group’s Celcom, in which both parties held a 33.1-per-cent stake after the merger.

Analysts’ call

Although most analysts have a ‘buy’ rating on DTAC due to its low valuation, the possibility of a merger or sellout has prompted much interest among market watchers.

“The report captured below surprised me,” Maria Lapiz, head of institutional research at Maybank Kim Eng Securities (Thailand) said in a note to clients. “While it is natural for long-term investors to exit from a country that are mature, I am convinced that it would still be years before Telenor exits Thailand because the operations here is still profitable and just beginning to improve. Yes on surface, it would look like DTAC is disadvantaged relative to the 1st and 2nd players in terms of subscriber base but deep dive one finds that its core operating performance is actually stronger, ARPU is more resilient. So while it does not have many revenue lines compared to the other two, one can also conclude that those ‘other revenue lines’ of peers are nearly ‘empty revenues’.”

She said that the target of a 2-billion-dollar exit by Telenor would imply that the exit price could be as high as 43.80 baht a share or a nearly 33-per-cent premium.

“[This] is just 4.7% lower than our DCF-based fair value (46 baht a share). This is a good price. Minority investors can wait for the tender offer.”

Potential buyer – TRUE

“According to sources, one of the potential buyers is True Corporation [TRUE], which is understood to be holding bilateral discussions with Telenor regarding a potential acquisition of DTAC,” TMT Finance reported.

This is not surprising as TRUE, run by CP Group, has explicitly said that it wants to be Thailand’s number-one mobile phone operator, from its number-two spot at the moment.

Maria of Maybank Kim Eng says that TRUE has always been mentioned as the potential buyer in every report that has come out for the sale of DTAC.

“If TRUE acquires DTAC, its subs base will reach 50.45 million, 18% bigger than ADVANC (based on 1Q21 data).  Duopoly in Thailand Telco will be firmly in place,” she said.

She added that TRUE’s then chief executive Supachai Chearavanont had explicitly said that if TRUE was to acquire DTAC, then the  acquisition can pay for itself.

“This looks reasonable. At the assumed exit price DTAC would be on a 4.9x EV/EBITDA (EBITDA is Maybank Kim Eng’s 3-year average forecast). DTAC also has hidden assets, some of which TRUE can monetise. At the end of 2Q21, DTAC has 107,000 base stations,” Maria said.

Meanwhile shares of TRUE were trading up 1.32 per cent at 3.08 baht a piece.

 Total subscribers of each mobile phone operator

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