Fees likely paid this year, remaining in 2018
Based on its assumptions, Maybank IB Research estimated each operator would incur circa RM2.3 billion of spectrum fees for the 700, 2,100 and 2,600 MHz bands, with half the amount (circa RM1.2 billion) due upfront, and the remainder in the form of annual payments (circa RM77 million) over 15 years.
In terms of timing, the research arm assumed the 2,600 MHz fee would be paid in 2017, and the 700 and 2,100 MHz fees in 2018.
After incorporating the incremental upfront spectrum payments, Maybank IB Research estimated gearing (net debt-to- earnings before interest, tax, depreciation and amortisation ( EBITDA)) of the mobile operators - Axiata Group Bhd (Axiata), Digi.Com Bhd ( Digi) and Maxis Bhd ( Maxis) - to remain relatively manageable.
“We are thus not expecting mobile operators to undertake further equity-raising,” it said.
Maybank IB Research noted that Digi remains the least geared, but net debt-to-EBITDA could breach one-fold in end-2018 post the spectrum payments.
At the other end, the research arm estimated Maxis’ net debtto-EBITDA at 1.7-fold at end-2018, comfortably below the group’s twofold internal ceiling thanks to its recent primary placement.
“Axiata’s net debt-to-EBITDA remains at the comfortable 1.4-fold in end-2018,” Maybank IB Research said
The research arm added that the disposal of the group’s M1 stake (if it happens) could lower Axiata’s net debt-to- EBITDA by circa 20 percentage point ( ppt). Overall, Maybank IB Research’s earnings forecasts and discounted cash flow ( DCF) - derived target prices for telco stocks were unchanged.
“Sector fundamentals remain uninspiring, with mobile revenue growth again unlikely in 2017,” the research arm said.
With no material improvement in the overall operating environment, the research arm viewed the overall risk-reward profile as being merely balanced.
Maybank IB Research has now switched its relative preference to Maxis, whose share price has recently been suppressed post the primary placement.
“Maxis’ operations have been the most resilient among the Big 3, and the recent equity-raising has alleviated potential gearing and dividend concerns,” it said.