Change in growth strategy for edotco
Company to add 1,000 towers, eyes smaller companies
Kuala lumpur: Axiata Group Bhd unit edotco Group Sdn Bhd hopes to add 1,000 telecomunication towers to its portfolio in the immediate term.
This is part of an overall target to land 10,000 towers over the next 12 to 18 months as the company embarks on a path to acquire smaller tower companies instead of large ones.
The change in strategy to acquire smaller companies comes in the wake of an aborted deal to purchase a telecommunication tower company in Pakistan in September.
The market where it is hoping to strike deals incude Malaysia, Bangladesh, Myanmar and Indo-China.
“The size of total deals will be in the 10,000 range. We are negotiating and we will be lucky to hit 100% in the next 12-18 months,” edotco chief executive officer Suresh Sidhu said in an interview.
“We will focus on the countries we are in, at least for the next 12 months,” he said.
Edotco prefers to work on smaller deals these days after the collapse of a RM4bil deal with Pakistan’s Deodar that would have added 13,000 towers to its portfolio in one scoop. With that deal, edotco would have become the eighth largest global independent tower company from its 12th spot now.
Currently, edotco has a regional portfolio of more than 28,000 towers in Malaysia, Myanmar, Bangladesh, Cambodia, Sri Lanka and Pakistan.
Suresh said Pakistan still remains on edotco’s radar, although it will revisit that when there is more regulatory stability.
In July, edotco bought some towers in Kedah and is currently working with several parties for more tower assets in the country.
The move towards 4G sees the demand for towers growing in every country. Increasingly, telecom companies are becoming “asset light”, preferring to sell their towers and just lease space for better cost efficiencies and less hassle.
Governments are also pushing for more sharing of infrastructure assets to avoid duplication. A typical tower can cost anything from US$100,000 to US$300,000 depending on size and location.
One of the major considerations for any purchase is the tenancy ratio. Currently, edotco’s portfolio of towers has a 1.74 tenancy ratio, while the global average is between 1.6 and 2.0. “Growth in every market we are in looks positive,” Suresh adds.
There over 22,682 telecom towers in Malaysia, according to data compiled by TowerXchange. Of this, edotco has 4,000, most of them from Celcom Axiata Bhd, another unit of Axiata Group.
Another 3,200 towers are owned by 14 state government companies and independent tower companies, while Digi.Com Bhd has 3,400 towers, Maxis Bhd 3,800 and YTL Communications, 5,000.
With net cash of about RM1bil in its coffers as at the end June 2018, Suresh said the company has enough funds to take it through the middle of next year and also for some acquisitions.
“We do not foresee the need for capital injection till the second half of 2019,” Suresh said, adding that the business was generally self-funding.
As for capital expenditure, edotco spent RM400mil in capex last year. It is expected to spend RM700mil this year and is likely to spend the same amount next year.
For the full year of 2017, edotco reported RM180mil in net profit on the back of RM1.3bil revenue. For the second quarter of 2018, it was RM73mil and RM372mil, respectively.
For a long time, there has been talk that edotco is heading for an initial public offering (IPO). This is seen as a catalyst for a re-rating of Axiata group. But things may have changed with the collapse of the Pakistan Deodar deal and the volatility in the stock markets.
“There is really no big rush,” Suresh said when asked about it. Experts believe edotco should focus on adding more towers to its portfolio before going public, which is what its game plan appears to be. The future is also about fibre, and increasingly, edotco is mov- ing in that direction to ensure its towers are fibre equipped to cater to the explosive data growth. This is essential in a 5G environment as network backhauls need to be fibre fitted to cater for data demand. Edotco is constantly innovating to create cost effective solutions to remain in the forefront of the tower business.
Currently, it is running trials at KL Sentral together with Huawei Technologies (Malaysia) for the world’s first ever multi-operator, multi technology indoor solution that is capable of improving data coverage and throughput speed by up to four times for all mobile network operators in the country.
If things work out as planned, this product could be marketed globally and it would be very relevant for a 5G environment where a lot more cells are needed for better coverage.
Axiata Group has a 62.37% stake in edotco, while Khazanah Nasional Bhd holds 10.75%, Japan’s Innovative Network Corp 21.51% and Kumpulan Wang Persaraan, 5.38%.