Mo­bile tele­coms sec­tor gets ‘neu­tral’ rat­ing

An­a­lysts say bet­ter to put money into fixed tele­coms providers

The Star Malaysia - StarBiz - - News -

PETALING JAYA: An­a­lysts are “neu­tral” on the mo­bile tele­coms sec­tor and some reck­oned that it would be bet­ter for in­vestors to put their money into fixed tele­coms providers in­stead.

Their views stem from the lat­est plans by the Malaysian Com­mu­ni­ca­tions And Mul­ti­me­dia Com­mis­sion’s (MCMC) which put the 700Mhz spec­trum up for ten­der that will be car­ried out through a “beauty con­test” process.

The frame­work will re­quire ap­pli­cants to sub­mit their re­spec­tive pre­lim­i­nary five-year busi­ness plan (be­fore Jan 2, 2018) to the reg­u­la­tor.

It was re­ported be­fore that the cost of a 2x5MHz block in the 700MHz band was RM215.54mil in a sin­gle lump sum pay­ment, while in­stall­ment pay­ments of up to 15 years would see this cost al­most dou­ble to RM417.12mil.

The an­nual fee for each 2x5MHz spec­trum block would be RM18.54mil with a 15-year time frame for us­age of the air­waves.

In its re­port, Ke­nanga Re­search said that it was sur­prised that the pro­posed to­tal 15-year up­hold­ing of 2x5MHz in the 700MHz spec­trum band was slightly cheaper than the 900MHz fre­quency RM499.7mil).

“The for­mer gen­er­ally is per­ceived as more valu­able due to its greater geo­graphic cov­er­age ca­pa­bil­ity (which im­plied lower capex in­curred) and bet­ter in­door sig­nal strength,” it said.

“While it’s too early to gauge the im­pact, the new regime is likely to lower the in­cum­bents’ prof­itabil­ity given the 700MHz spec­trum is a newly al­lo­cated fre­quency, thus suc­cess­ful ap­pli­cant would need to fork out ad­di­tional li­cens­ing fee for up­hold­ing the spec­trums,” it added.

Ke­nanga said that it does not fore­see the big three mo­bile telco in­cum­bents fac­ing any dif­fi­culty in set­tling the spec­trum fee with a lump-sum pay­ment in view of their hefty war chests.

Ke­nanga es­ti­mated that Maxis Bhd, Ax­i­ata Group Bhd and DiGi.com Bhd’s fi­nan­cial year 2018 net profits could be lower by 2.4% / 3.5% / 3.1% re­spec­tively.

This as­sumes the top three mo­bile in­cum­bents are awarded 2x10MHz fre­quency each and set­tled the pay­ment via the lump-sum method as well as amor­tis­ing the spec­trum un­der the use­ful life. (RM493.6mil vs.

UOB Kay Hian Re­search said that this 700MHz band is long awaited and will be a boon to play­ers in the in­dus­try as it will of­fer a wider reach and bet­ter in­door pen­e­tra­tion.

The re­search house said it ex­pected Digi, Maxis, Cel­com, TM, U-Mo­bile and YES Com­mu­ni­ca­tions (un­der YTLPower) to sub­mit their mar­ket­ing pro­pos­als to the MCMC.

“The tim­ing of the an­nounce­ment is likely a wel­come to the in­dus­try. More per­ti­nent, the beauty con­test is pred­i­cated on tel­cos’ abil­ity to utilise the spec­trum ef­fec­tively as op­pose to bid­ding for the spec­trum it­self (mon­e­tary beauty con­test),” it said.

“Re­call that Digi and Maxis had raise fund­ing in the past months via sukuk is­suance and pri­vate place­ment re­spec­tively.

“This will pro­vide the fi­nan­cial mus­cle to un­der­take the above spec­trum al­lo­ca­tion,” it added.

UOB Kay Hian said he sec­tor cur­rently trades at 26 times 2018’s for­ward price to earn­ings ra­tio and 10 times en­ter­prise value to earn­ings be­fore in­ter­est taxes de­pre­ci­a­tion and amor­ti­sa­tion.

Both Ke­nanga Re­search and UOB Kay Hian Re­search are “neu­tral” on the sec­tor.

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