Malaysia’s benchmark index retreated as profit-taking in key heavyweights weighed on sentiment, while overall market activity remained active. Summary FBM KLCI fell 0.83% to 1,684.93 , dragged by losses in banking and selected large-cap names, despite steady trading participation. Market Performance FBM KLCI : 1,684.93 (-0.83%) FBM Mid 70: -0.00% (flat) FBM Small Cap: -0.23% FBM ACE: +0.20% Broad market was mixed , with weakness concentrated in large caps. Market Breadth & Trading Activity Total volume: 3.54 billion shares Total value: RM4.19 billion Gainers: 456 Losers: 678 Unchanged: 550 Market breadth turned negative , reflecting cautious sentiment. Top Movers – KLCI Gainers Axiata (6888.MY) +1.54% Petronas Gas (6033.MY) +1.18% Sunway (5211.MY) +1.15% Losers Hong Leong Bank (5819.MY) -3.29% Maybank (1155.MY) -3.02% CIMB (1023.MY) -2.47% Banking sector weakness was the main ...
Maintain buy with target price (TP) of RM5.00
Axiata and its wholly-owned subsidiary, edotco Group (edotco) announced a USD600m primary and secondary equity private placement deal with Innovation Network Corporation of Japan (INCJ) and Khazanah Nasional (Khazanah). The maiden equity fund raising exercise for edotco sets a new benchmark as the largest global tower sector private placement in 2016. Currently managing 25,200 towers across five countries, edotco is the world's 11th largest tower company. With this fund raising exercise, we expect edotco to be more aggressive in M&A activities before pursuing its planned IPO in 2017. Meanwhile, we estimate that the secondary share placement by Axiata of USD200m would help to pare down FY17F gross debt/EBITDA from 2.2x to 2.0x. Overall, we are positive on this deal as it allows Axiata to unlock value of edotco in the future as well as reduce its gearing, albeit marginally. We maintain our Trading Buy call and DCF-based TP of RM5.00 as this juncture, pending finalisation of this exercise in Jan 2017.
- Equity private placement deal. Axiata entered into an agreement with INCJ for a primary placement of edotco shares that would raise up to USD400m (equivalent to RM1,769.9m). Simultaneously, Axiata would divest edotco shares to Khazanah for a cash consideration of USD200m (equivalent to RM885m). INCJ is a Japanese public private investment co and its key interests in edotco are the unique portfolio in Asia's high growth frontier markets, solid customer contracts and management team. The capital injection should enable edotco to execute its growth strategies which include expansion within Asia through M&A exercises. Domestically, we believe there are also opportunities for edotco to grow its tenancy ratio as industry's cost escalates due to rising competition.
- Lower gearing. The secondary share offering of USD200m should help to lower Axiata's high gearing level from 2.2x to 2.0x (gross debt/EBITDA). As at 30 September 2016, Axiata has an unhedged USD loan of 53% or USD1.4bn. We estimate that USD debt accounts for about 50% of Axiata's total borrowing. We believe Axiata would eventually pare down some of its stakes in overseas operating units in order to raise funds to further reduce its high gearing ratio.
- Maintain Trading Buy. We are positive on this private placement exercise as it allows Axiata to unlock value of edotco via an initial public offering in the future. Additionally, Axiata's valuation looks attractive at 20.5x forward PER. However, we see potential headwinds for Axiata - political and regulatory risks in overseas markets, impairment in India and lower earnings due to disposal of high-growth subsidiaries. As such, we only rate Axiata a Trading Buy.
Source: PublicInvest Research - 14 December 2016
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