This article first appeared in The Edge Financial Daily, on February 2, 2016.
Telecommunications sector
(Jan 29)
Maintain neutral: The government announced its plans to raise revenue through a redistribution and bidding process, which will be implemented soon.
We believe this will have a negative impact on the telco sector, as this may coerce our telco operators to spend additional capital expenditure (capex) to retain or acquire their 900MHz and 1800MHz spectrum.
The spectrum re-farming would encourage fair redistribution of the spectrum allocation.
Based on the recent spectrum auction in Thailand, the indicative price per MHz was fixed at RM2.31 million per million population, while 1800MHz at RM2.85 million per million population.
Assuming that the Malaysian Communications and Multimedia Commission adopts the Thai standards, the reserve price of 2x35MHz of the 900MHz spectrum would be RM2.4 billion and RM4.3 billion.
In short, the minimum amount that Axiata Group Bhd, DiGi.Com Bhd and Maxis Bhd have to spend to retain their 900MHz and 1800MHz spectrum would be RM2.6 billion, RM1.6 billion and RM2.5 billion respectively.
We believe DiGi would fare better relative to its peers with merely 2x2MHz in the 900MHz space (5.7% of the allocation), and with the auction, DiGi stands a chance to be reallocated for more spectrum for the roll-out of 4G LTE.
Furthermore, DiGi has a stronger balance sheet that will be able to absorb the additional cost from the auction, with a net debt/earnings before interest, taxes, depreciation and amortisation of 1.1 times, which is the lowest among its peers.
Overall, we view this spectrum bidding to have a negative impact on the telco sector, given the possible substantial outflow of cash, which would affect the players’ future dividend payouts and capex planning.
We maintain our “neutral” view on the sector. We have a “buy” recommendation on DiGi (target price [TP]: RM6.10), with “hold” recommendations on Axiata (TP: RM5.86) and Maxis (TP: RM5.60). — BIMB Securities Research, Jan 29