UOB KayHian: Keppel makes ‘two offers you can’t refuse’ for Keppel T&T and M1

Singapore five-dollar note Photo by Leslie Shaffer

Keppel Corp. has made “two offers you can’t refuse” with its bids for M1 and Keppel Telecommunications & Transportation, UOB KayHian said on Friday, advising shareholders accept them.

“The deal is earnings-accretive for Keppel, and does not overly stretch its balance sheet,” the brokerage said in a note.

Keppel Corp. and SPH said on Thursday that, via a special purpose vehicle called Konnectivity, they planned to make an offer for all of M1 at S$2.06 a share. The offer price is a premium of 26 percent to M1’s last traded price of S$1.63 on Friday of last week.

Konnectivity has a deemed interest of 33.27 percent of M1, the filing said, with Keppel T&T, which is 79 percent owned by Keppel, owning 19.2 percent, while SPH has a 13.45 percent stake held via wholly owned subsidiary SPH Multimedia. Axiata holds an around 28.7 percent stake in M1.

In a separate deal, Keppel proposed taking Keppel T&T private at S$1.91 a share, it said in a filing to SGX on Thursday. The stock last traded at S$1.36 on Friday of last week before being halted, indicating a 40 percent premium in the offer price.

Impact on Keppel

For M1, UOB KayHian noted Keppel was only seeking a controlling stake, unless acceptances exceed 90 percent.

“At the current shareholding, Keppel only requires an additional 17-18 percent stake to achieve their objective. Axiata’s likely
rejection of the offer does little to impede Keppel from their goal,” the note said.

It noted the planned business transformation for M1 likely to take several years, benefits to Keppel’s earnings would likely only be seen in the longer term.

But it added, “Given the earnings accretion and low financing costs, the impact was less negative to Keppel’s balance sheet than we had initially thought.” It said the near-term earnings impact would be neutral.

It has a Hold call on Keppel shares, however, amid property earnings concerns, with a S$7.37 target price and an entry price of S$6.60.


The brokerage recommended accepting the Konnectivity offer for M1’s shares.

“M1 would be the biggest casualty of increased competition from TPG Telecom as mobile accounted for 75.7 percent of its total service revenue in the second quarter of 2018,” it said.

“By tendering their M1 shares to Konnectivity, investors avoid a painful period of intense competition and ARPU erosion that would occur in 2019 and 2020,” it said. ARPU stands for average revenue per user.

The brokerage also noted that it didn’t expect the mobile industry to consolidate back down to three players until 2021 or later, making for a long wait for investors.

Keppel T&T

UOB KayHian also advised shareholders accept Keppel’s offer for Keppel T&T’s shares, noting the S$1.91 offer price marked a 26.5 percent premium to its fair value of S$1.51.

The offer premium “likely reflects the future value of its data center project pipeline. The offer gives investors the chance to cash-in on the potential now, rather than await its execution over a longer period,” UOB KayHian said.


Major shareholder Axiata’s statement on the bid for M1 appeared to indicate it was “dissatisfied” with the Konnectivity offer, suggesting it may either reject it or make a counter offer, UOB KayHian noted.

“We believe the market may view any potential counter bid to be negative (due to potential cash call by Axiata) and this will weigh down on Axiata’s near-term share price performance,” it said.

But based on the S$2.06 a share offer, Axiata could receive cash of up to 1.7 billion ringgit, above the 1.5 billion book value of its M1 shares, it said.

It kept a Hold call on Axiata with a 4.85 ringgit target price and an entry price of 4.00 ringgit.

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