XL Axiata,  67%  owned subsidiary  of  Axiata  announced  yesterday  that they have disposed 3500 telco towers to PT Solusi Tunas Pratama for a cash price of IDR5600bn (approx. RM1.5bn). Concurrently, XL has also entered into a lease back agreement for the said towers for a period of 10  years  at  IDR10m/month.  XL  says  that  the  deal  is  transacted  at  an implied EV/EBITDA of 9x. (Source:Axiata Company)

Comments: The sale comprises nearly 35% of XL’s towers in Indonesia. At a disposal price of US$130k per tower, XL is getting a slightly lower value than the US$162k per tower that Indosat received back in 2012. There may however be differences in the location of the towers and XL holding back those in more strategic locations, and thus explaining the pricing  differential.  Impact  to  Axiata  is  expected  to  be  minimal  as  the proceeds are expected to be used to reduce XL’s gearing position which has  increased  after  its  Axis  acquisition.  With  lacklustre  growth  and below  sector  average  dividend  yields,  valuations  at  22x  is  just  not compelling. Maintain Reduce on Axiata (TP: RM6.05)

Source: Affin Hwang Capital Research - 2 Oct 2014