Brokers' take: Maybank KE recommends investors to accept Dtac-True merger offer

MAYBANK Kim Eng (Maybank KE) is recommending investors of Total Access Communication (Dtac) and True Corporation accept the tender offer which, if successful, could result in Thailand's largest telco by market share.

That being said, benefits of the US$8.6 billion merger deal will take at least 2 years to emerge. Many events can happen in the interim that could cap the merged entity's share price, the research team said in a note on Wednesday (Dec 22).

It has downgraded Dtac to "buy" from "hold" with an unchanged target price of 45.10 baht (S$1.82) and maintained "hold" on True with a raised target price of 5.09 baht from 3 baht.

Shares of Dtac last traded at 44.25 baht while shares of True last traded at 4.56 baht on Dec 21.

On Nov 22, Norwegian telco Telenor and Thai conglomerate Charoen Pokphand Group agreed to merge their telco units to help create a more competitive entity within the Thailand telecoms market. If approved by regulators, it would become the largest Thailand telco by market share.

After the tender offer and the share swap, Dtac and True will have equal stake holdings in the new entity, about 33 per cent each and the rest is public.

The amalgamation is deemed the best approach to allow the fastest ride on the digital shift in technologies like artificial intelligence, Internet of Things and 5G. It will produce significant cost synergies and strengthen the competitive position of the merged entity, Maybank KE noted.

The merger of both telco units will create an entity with a more balanced subscriber base. This means potential growth and a more stable profitability profile overall, the research team said.

True is popular among the younger subscriber-set that can be lured by pricing and service offers, resulting in a lower average revenue per user compared with competitors.

Meanwhile, Dtac has a strong grip on the small to medium enterprises sector and small businesses - a segment which takes time to nurture and grow. Having a customer-centric strategy also means contributing higher efficiency at a competitive cost, according to Maybank KE.

By merging, True will be able to tap the knowledge and technology pool of Dtac parent Telenor to choose the most suitable format for its services in Asean countries.

On the other hand, True's own parent CP Group has multiple investments in the digital or fintech arena, including payment app Ascend Money. The merger entity will be able to latch on to these platforms and accelerate any regional goals.