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Wednesday, April 19, 2017

Brokers Report: Axiata Berhad - Another on edotco’s Bandwagon



Retain HOLD with an unchanged target price (TP) of RM4.65



Highlights

  • Announced an additional private placement of edotco shares to KWAP for US$100m.
  • This is on top of the US$400m primary private placement to INCJ and US$200m secondary placement via divestment to Khazanah, which were announced in Dec 2016.
  • Upon completion, Axiata will remain as the major shareholder with 62.4% stake, while INCJ, Khazanah and KWAP with 21.5%, 10.7% and 5.4% stakes, respectively.
  • This enlarged placement of shares to KWAP is an extension of edotco’s equity private placement process announced earlier and was concluded on the same equity valuation of close to USD1.5bn and an enterprise value to FY16 EBITDA multiple of 12.5x, on par with regional peers.
  • edotco is the 12 th largest tower company globally with presence in Malaysia, Cambodia, Myanmar, Bangladesh, Sri Lanka and Pakistan and is continually assessing opportunities in existing and new markets for growth and expansion.
  • The full proceeds from the placement process will allow it to undertake value accretive opportunities as they arise.

Financial Impact

  • Beef up edotco’s war chest to further fund its own organic and inorganic expansions.
  • Its capital independence is a relief to Axiata’s highly geared balance sheet with debt amounted to RM22.3bn or gross debt/EBITDA of 2.6x as end of FY16
  • Axiata remains committed to maintain gross debt/EBITDA to below 2.5x.

Comments

  • A positive development as this is viewed as an important milestone towards asset monetization via future IPO.
  • These capital injections will support edotco’s aggressiveness in M&A, which is eyeing for 1 or 2 more deals within SEA to attain the ripe size for IPO.
  • Recently, edotco was reported to be considering buying a stake in Indian tower assets after the merger completion between its 20%-owned associate, Idea and Vodafone.

Catalysts

  • Higher smartphone penetration boosting data ARPU.
  • Strong growth in low penetration developing markets.
  • Penetration into new markets and in-country consolidations.

Risks

  • Regulatory risks, price wars and high gearing level.

Forecasts

  • Maintained.

Rating

HOLD  , TP: RM4.65 
  • Regional exposure with focus on emerging countries with great growth potentials. However, regulatory and execution risks are major concerns. Asset monetization through tower listing is a long term catalyst.

Valuation

  • Maintain HOLD with unchanged SOP-derived TP of RM4.65


Source: Hong Leong Investment Bank Research - 19 April 2017

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