• Axiata’s 63%-owned edotco Group entered into a share purchase agreement for the disposal of its entire 87.5% stake in edotco Investments Singapore, a special purpose investment holding company for edotco’s investments in Myanmar and sole shareholder of edotco Myanmar, for USD150mil (RM713mil) cash. At this juncture, the buyer of the stake remains undisclosed.

• As reported, Edotco owns about 2,128 towers and manages 945 sites in Myanmar, which translates into 3% - 4% of Axiata Group's FY23 total assets. In FY23, edotco Myanmar generated RM95mil revenue, translating to 12% of total edotco Group revenue but negligible compared to Axiata’s huge base.

• In 2022, edotco halted further investments in Myanmar. The primary challenge was related to the repatriation of funds, as obtaining US dollars in the country proved to be quite difficult. This issue arose from Myanmar’s military administration tightening control over movements in foreign currency, as the country’s economy was adversely impacted by mounting nationwide conflict and accumulated effect of Western sanctions.

• Recall in 2015-2016, edotco bought a total 87.5% stake in Digicel Asia Holdings, the Myanmar tower asset owner, for USD160mil. Hence, the selling price is USD10mil below acquisition cost.

• As Axiata had already made provisions for losses on the disposal of the Myanmar towers in the RM887.9mil (USD187mil) asset impairment recognised in FY23, we do not expect any significant impact to the group’s FY24F earnings while net gearing could slightly improve to 1.49x from 1.52x.

• The news is within expectations as the management had earlier guided for a plan to exit Myanmar in the 4QFY23 analyst briefing due to macroeconomic headwinds and worsening business/regulatory conditions.

• Even so, we are mildly positive on Axiata exiting Myanmar with many international funds facing difficulty in investing into the country. Up to this date, edotco has been maintaining its Myanmar operations via internal cash funds.

• Moving forward, Axiata is focusing on expansion into other emerging frontier markets like Philippines and Cambodia. In September 2023, edotco had acquired 2,710 tower sites in Philippines.

• We maintain HOLD on Axiata Group (Axiata) with an unchanged SOP-based fair value (FV) of RM2.95/share. This implies FY24F EV/EBITDA of 6.3x, which is the 5-year median. We have a neutral 3-star ESG rating for Axiata.

Source: AmInvest Research - 5 Apr 2024