Axiata’s wholly-owned tower company, edotco, has entered into an agreement to acquire a 75% stake in Digicel Myanmar Tower Company (MTC) for a total consideration of USD125m. Maintain NEUTRAL and MYR6.40 TP (10% upside). With mobile penetration still relatively low in Myanmar at around 50%, we believe that edotco could be in a position to capitalise on the growing mobile and tower infrastructure needs.

Acquiring 75% shareholding in Myanmar tower company. Axiata announced that its wholly-owned tower company, edotco Group SB, hasentered into a share purchase agreement with Digicel Group Limited to acquire a 75% equity interest in Digicel Asian Holdings Pte Ltd, the parent of Digicel Myanmar Tower Company Ltd (MTC). Axiata is expected to pay about USD125m (or c.MYR731m) for its stake in MTC (after adjusting for external borrowing and other working capital requirements). The deal is expected to be settled via internallygenerated funds and/or bank borrowings and will be subject to relevant regulatory approvals. As at 2Q15, Axiata had about MYR5.4bn in bank balance, which should be sufficient for the acquisition.

On track to expand edotco’s regional presence. We believe that the acquisition is in line with edotco’s strategy to expand its business regionally and to grow its portfolio of 14,000 towers currently. We understand that MTC currently has about 1,250 tower sites, and based on MTC’s enterprise value of USD221m, this translates into c.USD177,000 per tower. Although this is at a slight premium to other transactions that value towers in the range of about USD100,000-150,000, we believe that this is justified by the strong growth prospects of the towerco segment in Myanmar, which has attracted a slew of investments by independent tower companies (ITCs) over the past two years. ITCs are currently servicing the internal needs of Telenor (TEL NO, NR) and Ooredoo (ORDS UH, NR), which have committed to rolling out more than 10,000 towers over the next two years to expand mobile coverage in the country. The towerco market, however, remains underserved, given the estimated 17,000 sites required to attain the 70% population coverage target (50% coverage currently) set forth by the Myanmar Government by 2017.

Maintain NEUTRAL. We retain our earnings forecasts. Keep NEUTRALand SOP-based TP of MYR6.40 for now, pending a briefing later today.