Brokers’ take: Maybank initiates ‘buy’ on Digital Telecommunications as a stable yield play

MAYBANK Securities sees strong potential returns from Thailand-listed Digital Telecommunications Infrastructure Fund (DIF) due to the long duration of its lease agreements with True Corp, one of the country's largest telecommunications conglomerates and a 20.6 per cent-owner of DIF. 

The brokerage has started coverage on the stock with a "buy" recommendation and price target of 14.80 baht, implying a potential return of about 17 per cent and an estimated yield of 8 per cent from FY2022 onwards.

Analyst Wasu Mattanapotchanart in an initiation report on Tuesday (Sep 6) highlighted DIF as a "stable yield play" for its long-term lease agreements with True, which are due to expire in 2043 for fibre and September 2033 for towers.

This implies revenue-weighted-average lease terms of about 17 years remaining as opposed to 8.2 years at DIF's competitor Jasmine Broadband Internet Infrastructure Fund (Jasif), he said.

The analyst estimates an internal rate of return (IRR) of 8.7 for DIF based on the assumption that True will extend its fibre lease with the company for 5 years upon the contract expiry, and that True will continue leasing towers from DIF indefinitely.

"If True does not extend any of the existing lease contracts with DIF, the worst-case scenario would imply an IRR of 3.9 per cent and fair value of 11.30 baht," said Mattanapotchanart, who compares this against Jasif's estimated IRR of 5.6 per cent as well as 1.1 per cent in the worst-case scenario.

Due to its superior IRR and longer lease terms, DIF is preferred by Maybank over Jasif, which the brokerage rates "hold" with an 8.10 baht price target.

"We believe there are more opportunities for new leases at DIF than Jasif," stated the analyst. 

He believes DIF would stand to also benefit from a potential merger between True and Thailand's GSM (global system for mobile communications) mobile operator Total Access Communication (DTAC), which is also a major shareholder and key tenant of DIF.

This is because the merged company's network consolidation could see DTAC moving some of its equipment from existing network sites to DIF's towers, according to Mattanapotchanart.

"If True successfully merges with DTAC we expect the merged company's balance sheet to be larger and healthier than True's, reducing the risk of reneging on rental payment to DIF," he added. 



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