KUALA LUMPUR: Hong Leong Investment Bank (HLIB) research is positive over the growth opportunities arising from edotco Sdn Bhd's proposed RM3.42bil acquisition of telco towers in the Philippines from subsidiaries of PLDT Inc.
The telco group, which is a 63%-owned subsidiary of Axiata Group Bhd, said it had entered into a sales and purchase agreement with the vendors for the purchase of 2,973 telco towers through a sale and leaseback transaction.
"We view this positively as this transaction comes with solid and long-term sale and leaseback MSA terms from a strong counterparty, along with attractive pipeline of build-to-suit (B2S) growth opportunities.
"Besides, there are great colocation potentials for the remaining cellcos to share these passive infra," said HLIB in a note.
According to the terms of the deal, PLDT will enter into a leaseback agreement for an initial 10-year master agreement with two optional five-year renewal period as anchor.
The monthly base rate for the sale and leaseback and BTS will be PHP100,000 and PHP120,000 per tenant per month (tower and power) respectively with inflation escalator of up to 3% on the operation and maintenance component.
On top of the sale and leaseback of the towers, PLDT has also committed to place orders for an additional 750 B2S towers.
The research firm noted that the development will also position edotco to capture a substantial share of future tower roll-outs as the Philippines government plans to increase its number of towers to 66,000 from 25,000 in June 2021.
HLIB said upon completion of the transaction, the tower count contribution from the Philippines will increase from less than 1% to 6% while revenue contribution will increase from less than 1% to about 13%, based on FY21 figures.
It added that the towers are also generating attractive Ebitda margin of about 76% versus edotco's existing Ebitda margin of 63%.
HLIB maintained its forecasts on Axiata pending the completion of the proposals.
It reiterated "hold" with a target price of RM4.03.