AXIATA (via 63%-owned edotco) has been shortlisted to bid for Myanmar’s Irrawaddy Green Towers with a tower portfolio of 3,000, estimated to be valued at USD800m. While this acquisition may seem expensive, a successful acquisition would give AXIATA dominance in the Myanmar towerco scene. Details are still sparse for now, but we estimate earnings boost to be less than 5%. We tactically upgrade AXIATA to OP (from MP), capitalising on share price weakness and technical chart support. SoP-driven TP of RM3.85 remains unchanged.

A large slice of the pie. It was reported that AXIATA (by extension, via its 63%-owned towerco arm - edotco) has been shortlisted to bid for Irrawaddy Green Towers (IGT) in Myanmar, one of the largest independent towercos in the country with a tower portfolio of 3,000. IGT is estimated to be valued at USD800m with rumours of this deal surfacing in March 2020. Two other bidders participating in this deal are Guodong Group from China and global private equity firm CVC Capital Partners.

Success would be a win… We are positive with the development as it would greatly add to edotco’s existing Myanmar portfolio of 2,100 towers and 1,051 managed sites. Asides from edotco and IGT, next in line would be state-backed MPT with a 4,000 strong tower portfolio. However, a potential price tag of USD800m might be steep, roughly equating to USD270k/tower. Channel checks indicate that the cost of constructing new tower in Myanmar is much less than USD100k each. That said, successfully acquiring them could enable synergistic gains, which we believe could include: (i) giving edotco access to previously untapped locations; and (ii) greater leverage in tower sharing agreements.

…albeit not a game changer. No details on IGT’s fundamentals are available as it is currently privately held. Anticipating tenancy ratios and profit margins to be constant with our current estimates for edotco, we estimate that revenue and earnings accretion could be up to RM300m (+1%) and RM30m (+4%), respectively. Still, it will allow the group to expand its recurring revenue profile which is highly sought after especially during this presently volatile market conditions.

The group had previously earmarked RM600m for edotco’s tower acquisition aspirations, which could indicate large debt needs to finance the deal. This would ultimately stretch the group’s net gearing of 0.8x.

Post-update, we leave our FY20E/FY21E earnings unchanged for now, as acquisitions have yet to materialise.

Tactical upgrade to OUTPERFORM (from MARKET PERFORM) with an unchanged SoP-driven TP of RM3.85. Our SoP-driven TP implies a 4.8x FY21E EV/Fwd EBITDA, which is -1.5SD below the stock’s 3-year average. The stock has previously been sold down following its 1QFY21 earnings disappointment and fear of a resurgence in Covid-19 cases. We believe current levels are oversold on the back of our highly conservative estimates, post-slashing our FY20E/FY21E earnings by 25%/27% in anticipation of poorer performance from its regional OpCos and extended losses from its digital segments. Additionally, we believe current price levels may provide an attractive entry point for those needing to position with the stock on what we see to have limited technical charting downside risks (first support level at RM3.40- RM3.45).

Risks to our call include: (i) weaker-than-expected service revenue, (ii) stronger-than-expected OPEX, (iii) stiffer competition, and (iv) regulatory pressures from regional operations.

Source: Kenanga Research - 25 Jun 2020