Advanced Info Service Public Company Limited (SET: ADVANC) announced yesterday that it would make a careful reconsideration whether the proposal on acquisition of TTTBB and JASIF would sustain after the unitholders of JASIF disapproved one crucial agenda that could derail the deal.
On October 18, 2022, the Extraordinary General Meeting of unitholders of JASIF voted in disapproval for the termination of the Rental Assurance Agreement and the Marketing Services Agreement and other related amendments, which is one of the conditions that ADVANC demanded to get the deal done.
Kasikorn Securities (KS) stated that the next critical milestone swings back to the decision of ADVANC’s board whether to accept or reject the acquisition deals of TTTBB and JASIF from JAS under altered conditions. KS expected the board will make a decision in a week or two. Since JASIF’s unitholders sent a clear message, KS saw a low possibility for any renegotiation.
KS reiterated its view that ADVANC should proceed with the deal despite no rental discount. The calculations show that incremental equity value from consolidation of the fixed broadband (FBB) market should not be less than Bt10.6 per ADVANC share, Bt3.77 of which would come from the present value of the rental discount throughout the lease contract at a discount rate of 9.2%.
In addition, KS believed ADVANC’s entrepreneurship as a major shareholder and progress of the merger between DTAC and TRUE could be driving factors for the deal to happen.
KS reiterated its 2022-24 core profit forecasts, its end-2023 DCF-based target price of Bt249.45 and Outperform call on ADVANC.
Meanwhile, FSS International Investment Advisory (FSSIA) believed the odds are 50:50 whether ADVANC will proceed with the deal or reject it because with no revision of the rental contract, the deal is now less attractive.
In FSSIA’s view, there is no significant difference between the two options. Note that the firm had not included the potential upside for the deal to the share price forecast yet because FSSIA projected it to be minimal at only THB2-8 or 1-3% compared to the consensus TP.
In addition, with ADVANC’s share price at its lowest level in over a year, trading at 6.5x 2023E EV/EBITDA (-1SD of its mean), FSSIA believed the downside is minimal, and that the market had already partially priced in the possibility that ADVANC’s proposed rental contract revision would be rejected by JASIF’s unitholders. Although there is a risk that ADVANC may lose its competitive advantage in the long term if the merger of its competitors can proceed, FSSIA believed JAS and ADVANC will come up with a way to resolve the rental contract issue in the future. Maintain BUY on ADVANC with the same TP of THB242.