AXIATA GROUP BHD
preferred option.
At this juncture, analysts opined, equity funding may not be an attractive option to the company.
The estimated loss of RM36mil in FY18 which already imputes narrowed losses in 2H18 on higher production are kept while the FY19-FY20 are increased by 13%-11% on the lower cost of operations.
Cost of operations are likely to be similar to 2Q18’s US$8/bbl level in 2H18 with higher workover cost to rejuvenate inactive wells masking cost savings (US$2/bbl) from logistic improvement via a new oil terminal (Angsagan).
On the other hand, FY18 bottomline is hit by interest cost of US$11mil at 5% interest rate on US$116mil shareholder loan and 10% (stepped up to 14% by November) on unpaid consideration of US$44mil.
Analysts calculated that Reach will achieve breakeven at more than 4,000 bbl/day level after stripping off forex fluctuations.
Overall, HLIB Research is positive on the operational improvement in 2H18 and FY19 with higher production but future growth beyond that is capped unless external funding is secured.
Post earnings adjustment, Hold recommendation with higher DCF derived TP of RM0.35 (from RM0.28) is maintained. Target price: edotco, a 62.4%-owned subsidiary of Axiata announced that its proposed acquisition of Deodar and its portfolio of around 13,000 towers for US$940mil (RM3.9bil) has been mutually terminated due to the failure in obtaining regulatory approvals within the stipulated timeframe.
The recent development came as a surprise as the deal was recently guided during the group’s second quarter of the financial year (2Q18) results conference call, to be completed in September 2018 pending regulatory approvals.
Analysts view the termination negatively as expectations for the associated growth and earnings accretion at edotco via the inorganic route is effectively removed.
The deal has been delayed several times for the same reason since its initial expected timeline for completion in the fourth quarter of the 2017 financial year (4Q17), when the deal was announced.
The proposed acquisition of Deodar was via a partnership formed between edotco and Dawood Hercules Corp, among the largest conglomerate in Pakistan, with each holding a 55% and 45% stake.
Impact on the earnings will be neutral as analysts have not accounted for contributions from Deodar.
edotco was expected to leapfrog its global towerco position from the 12th to 8th largest with around 31,000 towers and emerge as Pakistan’s leading towerco with around 13,700 towers.
In terms of financials, Deodar was estimated to be accretive by low single digit percentage to Axiata’s 2017 revenue, earnings before interest, taxes, depreciation and amortisation (EBITDA) and normalised profit after tax and minority interest by 3.6%, 4.0% and 3.2% respectively.
However, edotco have reaffirmed its commitment to grow its overall tower operations in South and South-East Asia inclusive of its existing operations in Pakistan where it owns around 700 towers via Tanzanite Tower Private Ltd, its wholly-owned subsidiary.
For 2Q18, edotco’s performance has been encouraging with continued growth in towers at 17,319 (a 11.1% increase y-o-y) and tenancy ratios at 1.59x (+0.12x y-o-y).
TA lowered the target price for Axiata to RM5.45 per share after lowering the enterprise value/EBITDA multiple to edotco from 14x to 12x on account of the termination of the deal. The reiteration of Buy still stands.
Key risks include heightened competition across key markets and regulatory uncertainties.