Axiata Group : Valuation boost from edotco’s placement BUY

STOCK FOCUS OF THE DAY

Axiata Group : Valuation boost from edotco’s placement              BUY

We maintain our BUY call on Axiata Group (Axiata) with unchanged forecasts and sum-of-parts (SOP)-based fair value of RM6.15/share. From Axiata’s placement of 820mil edotco shares at US$600mil (RM2.7bil) to Innovation Network Corp of Japan (INCJ) and Khazanah Nasional for a 34.1% equity stake in edotco, the entire equity valuation of edotco reaches US$1.76bil (RM7.8bil). This valuation incorporates the equity value of edotco’s final portfolio at US$1.5bil and enterprise value/FY16  EBITDA of 12.5x , vs Bharti Infratel's 15x, American Tower Corp's 20x and Crown Castle's 22x. As edotco’s pro forma 9MFY16 revenue and EBITDA were RM1.1bil and RM0.5bil, we estimate that edotco’s net debt at US$0.4bil, 12% of Axiata’s total debt. Based on Axiata’s equity stake of 65.9% in edotco, which we had not incorporated in our SOP due to scant details earlier, we estimate that the group’s SOP could be enhanced by 58 sen or 9%.

We are positive on Axiata’s plans to unlock edotco’s value and further de-gear the group’s already decent net FY17F debt/EBITDA of 0.8x to 0.6x, vs. Maxis’s 1.9x, which will position the group for any additional capex requirement to rollout 4G connectivity and spectrum acquisitions in its multiple geographical operations. edotco Group currently owns and manages 25,000 towers in Malaysia, Bangladesh, Cambodia, Sri Lanka and Myanmar, end-to-end solutions in the tower services sector from tower leasing, co-locations, build-to-suit, energy, transmission and operations and maintenance. Given Indonesia’s regulatory restrictions, only XL’s 6,000 towers are not included in edotco’s portfolio. Notwithstanding the intense domestic cellular competition, we continue to like Axiata due to the expected earnings accretion from its Nepal-based NCELL and strategic domestic roaming arrangement with Telekom, which will provide customers with a more comprehensive range of services.

QUICK TAKES

Genting Bhd : To issue US$1bil guaranteed notes              BUY

WCT Holdings : Proposing Placement of 10% New Shares              HOLD

ECONOMIC HIGHLIGHTS

Euro : Room for inflation to surpass the 2% target set by ECB

UK : Room for labour market to weaken

US : Inflationary pressure to stay

Malaysia : Inflationary pressure building up

NEWS HIGHLIGHTS

Construction Sector : WCT to raise up to RM212mil through share placement

Plantations Sector : FIC’s revamp will make it more competitive - GWGF

Telcos Sector :Axiata raising US$600mil from sale of stake in edotco