Spectrum payment to have minor impact on telco earnings, gearing

PETALING JAYA: AmInvestment Bank Bhd expects the RM118.4 million spectrum payment to have a minor impact on the earnings and gearings of Maxis Bhd, Axiata Group Bhd and Digi.Com Bhd.

The telcos each paid an upfront fee of RM118.4 million last Tuesday and agreed to an annual fixed fee of RM50 million for the 2100MHz spectrum that is currently deployed for 3G services. The annual fixed fee payment is payable by Dec 15 throughout the assignment period. The spectrum will be effective April 2 and valid for 16 years.

AmInvestment analyst Alex Goh said the additional annual costs of RM63 million, which include higher depreciation and interest charges would translate into 2% of Maxis’ 2019 earnings, 3% for Axiata and 3.5% for Digi.

“Given the lower base impact of the 2100MHz price component, we estimate that the lump sum payment will not have any significance to Maxis’ net debt/earnings before interest, taxes, depreciation and amortisation of 1.2 times, Axiata’s 1.4 times and Digi’s 0.7 times,” he added.

AmInvestment is maintaining a “neutral” call on the telco sector given the continued intense competition in the cellular segment while fixed broadband could face rising pressure from the government to cut tariffs to drive a knowledge economy. Its top “buys” remain Axiata and TM due to the game-changing merger prospects which will significantly enhance their earnings and market share trajectory.

Meanwhile, the research house maintained “hold” calls on Maxis and Digi due to the resistance in gaining traction in revenue growth amid potential loss in competitive advantage under a re-energised Axiata-TM brand.