Telecoms towers' acquisition to increase edotco's footprint in emerging markets — Public Investment

KUALA LUMPUR (April 21): Public Investment Bank Bhd has retained its "neutral" rating on Axiata Group following the news of the acquisition of 2,973 telecommunications towers and related assets in the Philippines by its indirect subsidiary ISOC edotco Towers Inc (edotco Philippines).

edotco Philippines, which is wholly owned by Axiata's 63%-owned subsidiary edotco Group Sdn Bhd, inked the agreement for the asset purchase with PLDT Group's units Smart Communications Inc and Digitel Mobile Philippines Inc for RM3.42 billion.

In a note, the investment bank said the acquisition will increase edotco's footprint in fast-growing emerging markets while diversifying its portfolio from the frontier markets, with edotco's exposure to Axiata's operating companies being reduced from 56% to 48%.

"The Philippines presents a high-growth opportunity as the current infrastructure is lagging behind regional peers while demand for connectivity is expanding.

"Coupled with support from the government [implemented policy to allow multiple telecoms networks to share tower infrastructure] to improve and upgrade existing networks, the telecoms sector in the Philippines is expected to chalk significant growth in the future," it said.

As existing mobile network operators move towards an asset-light model, edotco should benefit from the growing tower demand, it added.

Meanwhile, Kenanga Research said while the transaction helps edotco take another step towards its targets to be the top five globally and top three in Asia in terms of tower count by 2024, it is earnings dilutive in the near term but earnings accretive in the mid to long term.

"While edotco is paying a premium, we think it is justified given the scarcity of tower assets in Malaysia available for acquisitions.

"Looking ahead, this could set a precedent for future tower deals to also fetch higher multiples," it said while maintaining an "outperform" rating on Axiata with a target price of RM4.30.

Meanwhile, RHB Investment Bank Bhd said the acquisition marks the largest inorganic expansion for edotco.

"edotco's purchase of PLDT Inc tower assets, while earnings dilutive in the medium term, portends significant longer-term upside, with the Philippine tower company market on the cusp of accelerated growth," it said.

The research bank maintained its "buy" call for Axiata with a target price of RM4.76.