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BUY, new MYR4.76 SOP TP from MYR5.03, 29% upside. edotco’s purchase of PLDT Inc’s tower assets, whilst earnings dilutive in the medium term, portends significant longer-term upside, with the Philippines towerco market at the cusp of accelerated growth. We adjust our forecasts to factor in the acquisition and impact to the group’s net debt position. Our TP has baked in a 2% ESG premium based on our in-house assessment.
Buys PLDT towers. Axiata’s 63%-owned towerco subsidiary, edotco has entered into a sale and purchase agreement to acquire 2,973 towers from PLDT for PHP42bn (MYR3.42bn). This marks the largest inorganic expansion thus far for edotco. Valuation at 15x EV/EBITDA is justified on the strategic nature of the deal, alongside synergies to be realised. The purchase would be entirely debt-funded with no recourse to Axiata Group.
Deal transforms edotco into the Philippines’ largest independent towerco (ITC). About two-thirds of the towers to be acquired are in Southern Philippines, specifically in the under-served frontier regions of Mindanao and Visayas, with little overlap. Of this, ground-based structures made up 89% of the total with 71% being over 40m in height, making them ideal for co- locations (co-los). Post acquisition, the number of sites owned in the Philippines will rise to over 3,000 (c. 100 currently). edotco has also entered into a 10-year lease agreement with PLDT (option to extend for another two 5-year terms) and will be adding 750 new build-to-suit (BTS) sites, with construction of 500 staggered into 2025.
Philippines towerco market at an inflection point, being one of the fastest growing among the Asean-5 telco markets, with growth underpinned by rapid infrastructure deployment to meet coverage needs (especially in under- served areas). A common tower policy established in 2020 has facilitated the entry of new ITCs which should fuel more co-los going forward. The Government is looking at 66,000 new tower builds (from 25,000) which suggest scope for edotco to capitalise on the strong upside, both in terms of new BTS and higher co-los.
PAT neutral in Year 5. Axiata said the deal would be earnings dilutive for Year1–4 (2022-2025), as co-los are projected to rise progressively, reaching 1.5x by 2026 (from 1x currently with PLDT as the sole tenant). Upside could also stem from faster-than-expected realisation of integration synergies. Management is guiding for c.MYR149.6m pro-forma incremental depreciation expense (net of lease payments), with finance cost rising MYR100.4m (from USD debt). These should more than offset the EBITDA uplift over the medium term. We lower Axiata’s FY23-24F core earnings by 2-4% to factor in the acquisition. While edotco’s net–debt EBITDA is likely to exceed 4x from the acquisition, it may look at inviting strategic partners at the company level as a funding option. Edotco’s listing is still on the table, albeit not anytime soon.
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