INVESTMENT HIGHLIGHTS

• KWAP subscribes to USD100m worth of shares in edotco

• Axiata remains the largest shareholder at 62.4%

• The move will further strengthen edotco’s financial position

• Maintain NEUTRAL with an unchanged target price of RM4.98 per share

Another round of cash raising exercise. Axiata Group Bhd (Axiata) is placing a part of its stake in edotco Group Sdn Bhd (edotco) to Kumpulan Wang Persaraan (KWAP) for USD100m. This will bring edotco’s equity private placement exercise to USD700m. To recall, Axiata has previously placed out a total of 34.1% stake in edotco to Innovation Network Corp of Japan (INCJ) and Khazanah Nasional Bhd (Khazanah) for a combined sum of USD600m.

The private placement was concluded on the same equity valuation of approximately USD1.5b and FY16 EV/EBITDA of 12.5x, which is comparable to its regional peers. The proceeds from this exercise will enable edotco to growth the business organically and to be on the lookout for potential acquisition opportunities.

Axiata is still in control. Post the private placement, Axiata will remains as the major shareholder of edotco at 62.4%. Assuming a minimum controlling stake of 50.1%, we do not discount the possibility that Axiata can divest a further 12.3% of its stake in edotco.

Demand of towers remains robust. Demand of telecommunication tower is expected to remain robust due to: i) spectrum scarcity, ii) telecom operators outsourcing network build, iii) majority of data traffic in mobile due to limited fixed data network, and iv) regulatory regimes promoting infrastructure sharing

Maintain NEUTRAL. The performance of the group’s main operating segments has been under pressure. Nonetheless, our primary concern lies with Celcom’s future prospects, which is one of the group’s main EBITDA contributors. This is mainly attributable to the heightened price war among its peers. In addition, with the active merger & acquisition activities the group are currently embarking on, we opine that dividend payout could be capped as shown in its FY16 results. All in, we reiterate our NEUTRAL recommendation on the stock with an unchanged target price of RM4.98 per share. This is premised on pegging FY17 EBITDA to 7.5x EV/EBITDA, which is the group’s 5-year historical average.

Source: MIDF Research - 19 Apr 2017