Disposing of the Tower Business in Myanmar for USD150.0mn

Edotco Group Sdn Bhd, a 63.0%-owned subsidiary of AXIATA, has entered into a Share Purchase Agreement to dispose of its entire 87.5% stake in edotco Investments Singapore Pte Ltd, a special purpose investment holding company for the group’s investments in Myanmar and sole shareholder of edotco Myanmar Ltd, for a total cash consideration of USD150.0mn (RM713.0mn). The group did not disclose the identity of the buyer.

According to AXIATA, the decision to exit Myanmar was mainly due to deteriorating macroeconomics and operating environments in the local market. The capital from the proposed disposal will be redeployed for debt reduction, and the deal is expected to be completed within 12 months.

Our View

We are not surprised by this news, given that the group had previously guided that it intended to dispose of the telecommunication tower business in Myanmar during the analyst briefing. The cash consideration of RM713.0mn implies an EV/EBITDA of around 2.0x, which appears to be on the low side. We believe the discount could be justified by i) weakening macro environments, ii) potential changes in regulations, and iii) political uncertainty in Myanmar.

Meanwhile, we expect the financial impact to be minimal, given that Myanmar's EBITDA contribution to the group was merely around 2.7% in FY23. If we assume all the proceeds for debt repayment, the net debt/EBITDA of AXIATA is estimated to improve from 3.4x to 3.3x.

Overall, we believe the exit would help alleviate the persistent concerns about AXIATA's investments in frontier markets. It may also enhance the appeal of edotco to more strategic investors, given that it is currently undergoing a fundraising exercise.

Forecast

No change to our FY24-FY26 earnings projections at this juncture, pending regulators' approval for the proposed disposal.

Valuation

Maintain our Sell recommendation on Axiata with an unchanged TP of RM2.35 based on SOTP valuation. Key downside risks include heightened competition, macroeconomic headwinds, and regulatory uncertainties.

Source: TA Research - 5 Apr 2024