Maybank IB noted there has been some progress to edotco fund raising with the group entering into a SPA to dispose of its entire stake in its Myanmar entity.
While deal multiple (c.1x EV/EBITDA) is expectedly uncompelling, the transaction serves as a precursor to the broader edotco fund-raising. The house said it continues to view Axiata’s overall risk-reward as being positive, with net profit recovery and balance sheet repair being potential re-rating catalysts. Maybank IB reiterates a BUY call with an unchanged MYR3.50 SOP-based TP.
Signing SPA for Myanmar disposal
Recall Axiata had announced in its 4Q23 results release, of edotco’s intention to exit Myanmar. Edotco has entered into a SPA (share purchase agreement) to dispose of its entire 87.5% stake in its Myanmar entity for USD150m (or MYR713m). With the Myanmar operations delivering MYR280m of EBITDA in FY23 and likely in a net cash position, the house estimates the deal multiple at c.1x EV/EBITDA, expectedly uncompelling. The acquirer details were not disclosed, but would have likely been a domestic party given prevailing sanctions on Myanmar. The transaction is subjected to regulatory approvals and is expected to be completed within the next 12 months.
A necessary precursor
Maybank IB views the balance sheet leverage as a major overhang for Axiata (net debtto EBITDA at 3.1x at end 4Q23), and the edotco equity-raising would have been an avenue to address that. Edotco’s exit from Myanmar is likely a necessary precursor in our view, given most international funds are constrained from investing in Myanmar. The house said its previous simulation indicated every 10% new edotco equity raised (capped at 26% to keep edotco consolidated) would lower Axiata’s net debt to EBITDA by 0.11x-0.20x – this latest deal by edotco would lower the ratio by c.0.03x, we estimate.
Reiterate BUY
The earnings forecasts and MYR3.50 TP for Axiata (derived from a sum-of parts with each op-co valued on DCF) are unchanged, with associate CelcomDigi being the largest contributor of both earnings and SOP. Axiata remains committed to a minimum 10sen DPS annually
