An­a­lysts say 700Mhz spec­trum pric­ing struc­ture is ‘pro-busi­ness’

The Sun (Malaysia) - - SPEAK UP -

PE­TAL­ING JAYA: An­a­lysts con­tend that the pric­ing struc­ture for the re­al­lo­ca­tion ex­er­cise by the Malaysian Com­mu­ni­ca­tion and Mul­ti­me­dia Com­mis­sion (MCMC) for 700Mhz spec­trum blocks is “pro-busi­ness”, and there­fore a pos­i­tive devel­op­ment for the sec­tor.

HLIB Re­search said the costs are lower than ex­pected vis-à-vis per 900MHz block for RM218.3 mil­lion charge and RM18.8 mil­lion an­nual fee.

“No up­date on the sub-2GHz bands (2.1/2.3/2.6GHz) ex­pir­ing 2017-18 but this so­lid­i­fies our ear­lier be­lief that pric­ing will be bench­marked against 1800MHz’s RM95.1 mil­lion per block,” the firm said in its re­port.

AmIn­vest­ment Bank’s note called the pric­ing struc­ture “favourable” for the telco sec­tor given that the 700MHz band has over 40% wider cov­er­age foot­print com­pared with the 900MHz band.

“How­ever, we be­lieve that the pric­ing ex­er­cise for the up­com­ing band should have the sim­i­lar min­i­mal earn­ings per share (EPS) and bal­ance sheet im­pact ex­pected from the ear­lier 1800MHz spec­trum as­sign­ment, which cost only 44% of the price com­po­nent and an­nual fee of the 700MHz band,” AmIn­vest­ment said. The firm ex­pects min­i­mal im­pact on the bal­ance sheets of tel­cos, ex­cept for Bhd.

“Based on a 2x5MHz al­lo­ca­tion for the lump sum pay­ment, the FY18F net debt/ebitda (earn­ings be­fore in­ter­est tax de­pre­ci­a­tion and amor­ti­sa­tion) and im­pact is min­i­mal, re­main­ing at 1.5x for Ax­i­ata, 1.2x for Maxis and 1.8x for TM. How­ever, given Digi’s low debt lev­els, its FY18F net debt/ebitda will rise from 0.6x to 0.7x, which is still com­fort­ably within the group’s ac­cept­able gear­ing,” it ex­plained.

Ap­pli­ca­tions for the 700MHz fre­quency bands, which are cur­rently used for ana­logue broad­cast­ing ser­vices, open on Oct 31 and close on Jan 2, 2018.

The va­lid­ity pe­riod of the spec­trum as­sign­ment will be 15 years from the ef­fec­tive date of the spec­trum as­sign­ment and each ap­pli­cant can in­di­cate in­ter­est for up to four blocks. Suc­cess­ful ap­pli­cants who choose to pay a lump sum will be charged RM215.54 mil­lion for a 2x5MHz spec­trum block. In­stal­ment pay­ments are at least RM45 mil­lion higher.

For in­stance, the price for a spec­trum block will be RM260.60 mil­lion for five equal an­nual pay­ments, RM328.38 mil­lion for 10 equal an­nual pay­ments and RM417.12 mil­lion for 15 equal an­nual pay­ments. The an­nual fee for each 2x5MHz spec­trum block is set at RM18.54 mil­lion.

AmIn­vest­ment stated that the ad­di­tional fre­quency band will not im­me­di­ately trans­late into higher rev­enues, which will only ma­te­ri­alise from higher pay­ing sub­scriber market share on the back of im­proved ser­vice qual­ity and speed, com­pared with other play­ers.

AmIn­vest­ment main­tained a neu­tral call on the sec­tor, given the con­tin­ued in­tense com­pe­ti­tion in the telco seg­ment, with hold rec­om­men­da­tions on Maxis and Digi and buys on Ax­i­ata and TM, due to a game-chang­ing re­merger like­li­hood.

HLIB main­tained its neu­tral call on the sec­tor due to the lack of pos­i­tive cat­a­lysts in the near term, al­though the firm main­tained that tel­cos re­main stable sup­ported by re­silient do­mes­tic de­mand.

“Their de­pend­able div­i­dend yield will be a plus point in a volatile market,” it added.

On MCMC ex­plor­ing the idea of reload with iden­ti­fi­ca­tion mech­a­nism, HLIB said while the move would en­hance reload safety, it will un­de­ni­ably pose chal­lenges to tel­cos in terms ad­di­tional cost and may curb spend­ing due to the in­con­ve­nience.

HLIB’s top pick is TIME­dot­com, which is see­ing re­tail gain mo­men­tum on the back of reach ex­pan­sion and undis­putable high-value prod­ucts; data cen­tre’s steady ex­pan­sion and strong growth tra­jec­tory un­der­pin­ning its Asean am­bi­tion. It has a hold call on the stock with a tar­get price of RM9.98.

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