The trading of Axiata’s rights will commence today until April 22. Based on the closing share price yesterday and attributing a 5%-10% discount, the rights could potentially trade in the range of RM0.47-RM0.56. The indicated trading range implies this is a decent entry for new investors while existing shareholders would be better off taking up the rights. We maintain our NEUTRAL recommendation based on a target price of RM1.73, translating into an implied 10.1x-12.7x FY09/10 EPS, in line with regional comparables of 9.1x-12.4x.
Theoretical rights price of RM0.65. We believe the holding cost for most institutional investors of Axiata was above RM7/share (prior to the de-merger). Hence, the ‘averagingdown’ effect would be proportionally stronger with the rights shares priced at attractive levels. Investors who have bought the shares cum at above RM2.60 would be better off subscribing to their entitlements than renouncing their holdings. The fact that Axiata’s share price has held steady following the ex-date on April 8 and leading up to the trading of the rights concurs with our house view as articulated in our March 31 report, ‘The Psychology of Rights Issues’. In the case of Maybank-OR, which commenced trading on April 7, the rights traded in the range of RM0.98-RM1.22, implying a marginal 1%-7% discount to OSK’s target price of RM4.00 based on 1.1x forward P/BV.