KUALA LUMPUR (Feb 16): Axiata Group Bhd’s 63%-owned subsidiary, edotco Group Sdn Bhd, could enhance its appeal to potential new shareholders by exiting its Myanmar operations, which could be expedited by disposing of the tower assets to local buyers, said Kenanga Research.

“Following a coup in 2021 that overthrew Myanmar’s democratically elected government, the country is now ruled by a military regime. 

"A more efficient route for edotco’s withdrawal would be the disposal of its towers in Myanmar to local buyers. Hence, this would hasten the process of securing regulatory approvals and accelerate Edocto’s departure,” it said.

In a note on Friday, the research house said despite the high profitability of its operations in Myanmar, with earnings before interest tax, depreciation and amortization (Ebitda) margin of 85%, the decision to exit was attributed to ESG (environmental, social and governance) concerns.

In 2022, edotco said it stopped putting more money into Myanmar due to the challenges faced in the repatriation of funds. However, it reassured at the time that the operation was largely unaffected by the political upheaval in the country.

Edotco reportedly owns about 2,000 towers and manages 1,000 sites in Myanmar, which translates into 3% to 4% of Axiata Group's assets.

The Edge has reached out to Axiata for comment but has yet to receive a response at press time.

Outside of Myanmar, Kenanga Research opined that edotco remains focused on expansion in Malaysia, the Philippines and Bangladesh.

“In particular, edotco may potentially gear up to fund its expansion in the Philippines. It recently ventured into the Philippines in September 2023 via the acquisition of 2,710 tower sites,” it said.

Furthermore, it noted that Axiata does not have an immediate plan to venture into new markets to expand its telecommunication footprint. Instead, the country's biggest wireless carrier will focus on market repair, delivery of merger synergies at CelcomDigi, as well as the structural transformation of XL Axiata and Link Net.

Delving further into Axiata’s operation in Indonesia, Kenanga Research said its 79.5%-owned Link Net would require a peak funding of US$500 million (RM2.39 billion) to US$600 million to deploy four million home passes as part of its expansion plan in Indonesia.

“In any case, Axiata emphasised that capex for Link Net’s fibre rollout will not be funded by HoldCo [holding company]. Under this circumstance, Link Net will fund its expansion plan via internal cashflows or bank borrowings.

“This demonstrates Axiata’s commitment towards a dividend payout of at least 10 sen per annum, a net debt of 2.5 times and annual shareholder returns of high-single-digit,” Kenanga Research said.

It noted that Link Net is not expected to turn around in the near term as it remains in the gestational growth stage. Meanwhile, XL Axiata’s earnings are expected to receive a boost after the completion of Link Net’s transformation.

Overall, the research house has reiterated its “outperform” recommendation for Axiata Group with the sum-of-parts target price maintained at RM3.10.

“We continue to like Axiata for its plans to deleverage and strengthen its balance sheet, growth prospects for digital telcos and tower assets at emerging markets, and strong asset monetisation prospects for Edotco and its digital businesses,” it stated.

On the downside, it cautioned against the potential impact of a strong USD on the digital telcos in frontier markets, gestational earnings and cashflow drag resulting from Link Net’s aggressive expansion, and the capex upcycle due to the looming implementation of 5G in Indonesia.

During Friday’s early trade, Axiata Group saw its share price up by four sen or 1.45% to RM2.80, giving it a market capitalisation of RM25.7 billion