Mobile telecoms sector gets ‘neutral’ rating
Analysts say better to put money into fixed telecoms providers
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.