True Corporation Public Company Limited (SET: TRUE) and Total Access Communication Public Company Limited (SET: DTAC) on Monday, November 22, 2021, made an announcement of their Boards of Directors resolution in a feasibility of amalgamation between the two businesses.
Mr. Sigve Brekke, President and CEO of Telenor Group, stated in the press conference on November 22, 2021, that the world is entering a technology revolution era, which will be seen for the next 20 years and will change corporate business operations. The business will have to compete with other big companies globally and will require a business partnership, unlike the business in the past.
Mr. Suphachai Chearavanont, Chairman of the Board of TRUE and CEO of Charoen Pokphand Group, stated that the new technology is diminishing mobile operators’ role in the market. Having Telenor Group which is a global leading player in this field will help improve Thailand’s ecosystem. The new co-structure will align with corporate vision, taking part in tech vertical making Thailand one of the global tech hubs.
Kasikorn Securities (KS) made an analysis report after the announcement in the morning, emphasizing its positive outlook on the Information and Communication Technology (ICT) sector while expecting the deal between TRUE and DTAC to have a high success rate.
KS raised its probability rate for the deal from 25% to 80% based on the latest developments. The additional 20% probability was left for the deal to flop as it requires 1) EGM approvals; 2) various approvals from authorities, i.e. SEC, NBTC and MOC etc.; 3) possible political intervention; and 4) the resolution of unsettled matters between Telenor and CP Group.
Using recently announced ownership holdings in the new entity from DTAC and TRUE’s amalgamation (New Company) and the swap prices, KS came up with a swap EV/EBITDA of 6.43x for DTAC and 7.92x for TRUE.
The securities company expected share prices of DTAC and TRUE to correct for a short while from profit taking, but will recover later to reach the implied swap prices, which may offer trading opportunities in the near term.
According to KS, the data showed that a merger would rebalance the spectrum holding parity and thereafter competitive parity, while seeing an immediate improving price competition as the two remaining mobile network operators would have a similar revenue market share. More importantly, KS believed that both operators will develop some business collaboration given that their major shareholders are Thai with good relationships.
KS expected all mobile network operators’ share prices to rally when the deal is near approval by authorities. According to KS’ calculation, the securities company indicated the potential valuation upside for Advanced Info Service Public Company Limited (SET: ADVANC) to be 13% of fair value from its existing business while the New Company has 23% of upside, deducted for expected investment cost).
In addition, KS upgraded the ICT sector from Neutral to Positive to reflect its 80% probability of the deal between DTAC and TRUE to happen. The securities company raised the 2022E target price for ADVANC by 8.5% to Bt224.94 per share and reiterated Outperform rating. DTAC’s 2022E target price was raised by 20.5% to Bt43.97 per share and upgraded to Outperform rating. Lastly, TRUE’s 2022E target price was raised by 23% to Bt5.20 per share and upgraded to Outperform rating as well.