Axiata’s edotco Myanmar exit plans may delay completion of equity raising

KUCHING: Axiata Group Bhd’s (Axiata) plans to have its 63 per cent owned subsidiary, edotco Group Sdn Bhd (edotco), exit Myanmar could potentially cause delays in the completion of edotco’s equity raising exercise analysts at the research arm of Maybank Investment Bank Bhd (Maybank Research) say.

To recap, Axiata had previously announced that edotco is intending cease its Myanmar operations and exit the market.

The group’s Myanmar operations had made up 15 per cent or RM280 million of edotco’s EBITDA in its financial year 2023 (FY23) results.

In a company update, Maybank Research guided that edotco’s decision to exit the Myanmar market is suggestive of the group aiming to pursue potential equityraising in the near future.

However, given the constrains faced by most international funds on investing in Myanmar as well as the exit expected to be completed only within the next 12 months, Maybank Research opined that this would likely imply additional time will be required to complete edotco’s equity raising.

Overall, this does not bode well for Axiata in the near-term as the analysts points out that balance sheet leverage continues to be a major overhang for the telco as it net debt to EBITDA had climbed to 3.1-times at the end of 4Q23.

“Our previous simulation indicates every 10 per cent new edotco equity raised, capped at 26 per cent to keep edotco consolidated, would lower Axiata’s net debt to EBITDA by 0.11-times to 0.20-times,” said the research arm.

Nevertheless, Maybank Research stressed that Axiata’s FY24 committed minimum dividend per share (DPS) of 10 sen which amounts to RM918 million should be largely unaffected.

It highlight that given Axiata’s improved enterprise free cash flow (FCF) or circa RM2.6 billion from EBITDA recovery at most of its op-cos and reduced pressure to repay debt, its estimated DPS might not be at risk from any hypothetical delay in edotco funding raising.

With that in mind, the research arm guided that continue to view Axiata’s overall risk-reward as being positive, with net profit recovery and balance sheet repair being potential re-rating catalysts in their opinion.

As such, it reiterated its ‘buy’ call on Axiata with an unchanged target price of RM3.50 that is derived from a sum-of-parts (SOP) with each of its op-cos valued on a discounted cash floor (DCF).

The group’s associate, CelcomDigi, remains its largest contributor of both earnings and SOP.

— Bernama photo Axiata’s plans to have its 63 per cent owned subsidiary, edotco, exit Myanmar could potentially cause delays in the completion of edotco’s equity raising exercise analysts say.