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This article first appeared in The Edge Financial Daily on May 8, 2018

Axiata Group Bhd
(May 7, RM5.11)
Maintain neutral with a target price (TP) of RM5.30:
Axiata Group Bhd’s 63%-owned edotco is buying an 80% stake in a private firm that has obtained the rights to build telecommunication infrastructure in Kedah for RM140 million. Although this acquisition will allow edotco to expand its presence in Kedah with a portfolio of about 225 towers, we feel it is a costly purchase as the acquired company has no physical assets except the rights to construct towers in the future. However, the financial impact is not expected to be material as this acquisition is estimated to increase its net debt-to-earnings before interest, taxes, depreciation and amortisation (Ebitda) by 0.02 times in financial year 2018 forecast (FY18F).

edotco Malaysia had entered into an agreement with Utara Jernih and Mohd Azam Saad for the acquisition of an 80% stake in Tanjung Digital Sdn Bhd (TDSB) for a cash consideration of RM140 million. Utara Jernih and Mohd Azam Saad hold 64% and 36% of TDSB respectively. TDSB has been granted the rights for the construction of telecommunication (telco) infrastructure by Kedah. It has a wholly-owned subsidiary that is licensed under the Communications and Multimedia Act 1998 as a network facilities provider to engage in the business of construction and leasing of telco towers in Kedah.

This acquisition can be easily funded through internally generated funds and we estimate that it would increase its net debt-to-Ebitda marginally from 1.77 times to 1.79 times for FY18F. Earnings impact would be negligible as TDSB currently has no business operations but the rights to construction telco towers in the future. Presently, edotco has a portfolio of 3,800 towers and managed sites. Hence, an additional of 225 towers in Kedah is not likely to increase its earnings considerably in the future.

Separately, edotco Pakistan also announced that it had received approval from the Pakistan Telecommunication Authority on the change of shareholding in the entity by way of subscription of Dawood Hercules of 45% stake in edotco Pakistan. This was in relation to the acquisition of 13,000 tower assets held under Deodar Private Ltd by edotco Pakistan. — PublicInvest Research, May 7

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