HLBank Research Highlights

TIME DotCom - AIMS x DigitalBridge

HLInvest
Publish date: Wed, 23 Nov 2022, 09:32 AM
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This blog publishes research reports from Hong Leong Investment Bank

TdC has entered into a transaction with DigitalBridge to dispose its stakes in AIMS HoldCo and AIMS Thailand for RM2bn cash. Upon completion, TdC will hold 30% stakes in both AIMS entities. RM1bn of the sales proceed with be distributed as special dividend while the remaining will be reinvested as capex and working capital. We view this development positively as this deal allows TdC to (i) monetize its data centre business by receiving material cash proceeds; (ii) right sizing its balance sheet; and (iii) while retaining significant strategic and operational influence and economic exposure over the future growth of AIMS. Downgrade to HOLD despite with a higher SOP-derived TP of RM5.21.

NEWSBREAK

The transaction. DigitalBridge will acquire shareholdings in AIMS HoldCo and AIMS Thailand based on a 100% EV of RM3.2bn. DigitalBridge will acquire (i) 490k ordinary shares and 700k ICPS in AIMS HoldCo (Malaysia and Singapore) from TdC; and (ii) 210k ordinary shares in AIMS Thailand from TdC and 490k ordinary shares in AIMS Thailand from Symphony Communications. TdC expects to receive approximately RM2bn in cash proceeds. ICPS are convertible into ordinary shares of AIMS HoldCo within 2 years. Upon completion, TdC will hold 30% stakes in both AIMS entities, thus will be deconsolidated from Group financials.

DigitalBridge. It is one of world’s largest digital infrastructure firms investing across 5 key verticals: data centres, macro cell towers, fibre networks, small cells and edge infrastructure. Across its portfolio companies, it operates over 200 data centre facilities across 9 data centres and edge companies with over USD1.2bn combined revenue.

Rationale. (i) Expand and grow AIMS by replicating its business model across ASEAN and beyond with focus on capital cities, secondary towns and highly connected areas; (ii) capitalize on continued demand for highly connected, ecosystem-centric data centres; (iii) leverage on DigitalBridge’s capability while continuing to build on AIM’s strengths; and (iv) make Malaysia a core hub and gateway for greater connectivity in the region.

Sale proceed. (i) Up to RM1bn will be distributed to shareholders as a special dividend; and (ii) the remainder will be reinvested into TdC to fund capex and working capital, including potential incremental investments to continue growing AIMS.

Estimated timeframe. Expected to close before end of 2Q23 subject to certain conditions precedent, including TdC shareholder approval, being satisfied at or prior to closing.

HLIB’s VIEW  

We view this development positively as this deal allows TdC to (i) monetize its data centre business by receiving material cash proceeds; (ii) right-sizing its balance sheet; and (iii) while retaining significant strategic and operational influence and economic exposure over the future growth of AIMS.  

Due to the limited upside, we downgrade TdC to HOLD from Buy although SOP-derived TP is raised from RM5.16 to RM5.21 (see Figure #2) as we update the book values of its international businesses. Its domestic telco business is valued via DCF with WACC of 8.2% and TG of 1.5%. We like TdC as its retail is gaining momentum on the back of reach expansion and undisputable high value products. Also, data centre is expanding resiliently as IT outsourcing, cloud computing and virtualization are widely adopted. However, we opine that the risk and reward is balanced at current juncture.

 

Source: Hong Leong Investment Bank Research - 23 Nov 2022

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