Highlights

• edotco, a wholly-owned tower outfit has entered into binding term sheets for (not inter-conditional): 1. Primary private placement to Innovation Network Corp of Japan (INCJ) to raise up to USD400m (RM1.8bn); and 2. Secondary placement via divestment of edotco shares to Khazanah for USD200m (RM885.0m) cash.
• The selection was made after a formal evaluation process involving a diverse mix of international and local investors.
• The actual price and number of shares to be issued and/or divested under the proposals have yet to be determined at this juncture. Definitive agreements for these proposals are expected to be finalized and signed in Jan 2017.
• Upon completion, the enlarged capital base of edotco is expected to strengthen its financial position.
• Axiata will remain as the majority shareholder of the enlarged issued and paid-up share capital of edotco.
• Primary placement proceeds are for edotco to fund M&A, in- country organic growth opportunities and repayment of debts. While, the secondary placement proceeds are for Axiata to pare down borrowings as well as working capital purposes. Financial Impact
• A relief to its highly geared position with debt amounted to RM19.9bn as end of 3Q16.
• While information remains scarce, 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 by attracting interest with its unique portfolio in Asia?s high growth frontier markets, solid customer contracts, strong management team and independent operating model.
• These capital injections will support edotco?s aggressiveness in M&A, who is eyeing for 1 or 2 more deals within SEA to attain the ripe size for IPO.

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

• Unchanged pending definitive agreement closures.

Rating

HOLD ↔, TP: RM5.28 ↔

• 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

• Reiterate HOLD despite more than 10% upside to TP as we prefer to remain cautious while closely monitor for turnaround indicators. SOP-derived TP is maintained at RM5.28 .

Source: Hong Leong Investment Bank Research - 14 Dec 2016