• Keep BUY and SOP TP of MYR3.40 (30% upside), c.4% yield. Axiata’s 63%- owned edotCo Group has announced the disposal of edotCo Myanmar (EMM) for USD150m. We view the exit positively ahead of an impending recapitalisation of edotCo, where a process is currently in place. Balance sheet deleveraging remains a key investment thesis and re-rating catalyst. Our SOP TP includes a 2% ESG premium.

• Selling EMM. Axiata has entered into a share sale agreement for the disposal of its 87.5% stake in EMM for USD150m (c. MYR713m). The consideration is pending closing adjustments, with the towerco valued at c.USD171m. The sale confirms earlier plans to exit the market with EMM having been classified as an available for sale (AFS) asset in 4Q23 alongside a MYR489m impairment booked. We view the carve out of EMM positively, as it has been a stumbling block for edotCo’s equity raising exercise, where a process is currently ongoing. Pending regulatory approvals, the sale is expected to be completed within the next 12 months.

• Exit multiple reflects the challenging macroeconomic conditions. The consideration translates into a valuation/tower of c.USD70,000, which is about 30% lower than the indicative USD100,000/tower forked out in 2016 (75% stake), which valued EMM then at USD167m. The buyer is Pun Tower Investments Ltd, which is linked to the founder of Yoma Group, a Myanmar conglomerate with exposure to real estate, financial services, consumer, automotive, and heavy equipment, amongst others. Yoma was edotCo’s original strategic partner in the towerco business in Myanmar.

• Earnings void looks to be buffered. EM contributed c.14% of edotCo’s EBITDA with 2,128 sites owned (4Q23), and 945 sites under management with a tenancy ratio of 2x. Management expects the void in earnings to be buffered by stronger growth in Malaysia (5G rollout), Philippines (renewed site orders), and Bangladesh. Overall, edotCo expects the disposal of EMM to be EBITDA neutral, based on the continuing double-digit growth in EBITDA. Assuming the sales proceeds are utilised to pare debt, Axiata’s net debt/EBITDA would decline marginally to 2.9x from 3.0x (4Q23). The group is targeting 2.5x net debt/EBITDA by FY26F from equity fund raising and delayering of assets.

• Key risks are competition, weaker-than-expected earnings, and execution of its balance sheet deleveraging exercise.

Source: RHB Research - 5 Apr 2024