Highlights

• edotco has entered into a Share Purchase Agreement with Digicel Group Limited to acquire 75% equity interest in Digicel Asian Holdings Pte Ltd (DAH), the parent of Digicel Myanmar Tower Company Limited (MTC).

• Valued DAH based on an EV of USD221.0m (RM975.1m) on a cash free and debt free basis. The transaction will be settled via cash after adjusting for external borrowing and other working capital requirements of which based on the closing date of 30 Nov 2015 is expected to be circa USD125.0m (RM551.6m) for the 75% stake.

• The deal is subject to customary closing conditions, including the approval of the Republic of the Union of Myanmar (including the Post and Telecommunications Department), Bank Negara Malaysia and the consent of YSH Finance Ltd, the minority shareholder of DAH.

• Rationale: (1) majority control in strategic platform in a highly attractive tower industry; (2) further solidify edotco as the premier infra provider; and (3) expand footprint beyond Axiata’s current presence. Financial Impact

• No concern in financing the deal by internally generated funds and/or external borrowings considering Axiata’s cash pile of RM5.4bn at the end of 1H15.

Comments

• A major positive development into Myanmar after failed to bid for a telco license in 2013.

• Myanmar is the most untapped ASEAN market with 52m population supported by four cellcos, namely Posts and Telecommunications, Ooredoo and Telenor. Forth license will be issued to a local operator. As of 1Q15, mobile penetration stood at 49% while data penetration only accounted for 11%.

• DAH mainly builds and leases a network of mobile phone masts to Ooredoo.

• Expect high growth and profitable over the long term given the infancy of the industry. Besides having a local strategic partner, business risk is low due to long term lease contracts with cellcos and shielded from price war.

Catalysts

• Higher smartphone penetration boosting data ARPU.

• Strong growth in low penetration developing markets.

• Penetration into new markets and listing of Robi.

Risks

• Regulatory risks, FOREX fluctuations and competitive risks.

Forecasts

• Maintained.

Rating

BUY , TP: RM7.52

Positives

• mobile internet growth, margin improvements through collaborations/sharing, recoups prepaid tax via GST, unlock value through tower listing.

Negatives

• Challenging operating environment in Indonesia, Axis to weigh down XL in the short term, OTT substituting voice and SMS, unable to monetize data.

Valuation

• Reiterate BUY on the back of unchanged SOP-derived TP of RM7.52 (see Figure #2).

Source: Hong Leong Investment Bank Research - 5 Oct 2015