THE BUZZ
Star Business reported that M&A talks have begun in the
telecommunications space. It highlighted industry sources that one of the more
active players pursuing a M&A exercise was the YTL group which has
approached Asiaspace and Green Packet. Asiaspace’s
Chairman indicated that “consolidation was the most logical thing to do as capex
is so high for the industry”.
OUR TAKE
The fight for
survival. The developments do not surprise us as we had highlighted in the
past that a consolidation among the smaller telcos is a foregone conclusion, as
most lack the scale, operational track record and financial resources to
compete with the incumbents. This is also consistent with the government’s call
for the sharing of network resources in minimizing duplication, both on
active/passive infrastructure where various partnerships have already been
forged among the incumbents and the smaller telcos.
4 WiMAX players eyed.
We expect the consolidation theme to be strongest within the 4 smaller
companies – YTL, Communications, P1 Networks, Redtone and Asiasapace –awarded the 2.6GHz spectrum as
this is a condition implicit in the provisional allotment of the licences to
the operators last year. Of the four, P1 was the earliest to roll out its WiMax
service on the previously awarded 2.3GHz spectrum in 2008. YTL launched its wireless
broadband service in Nov 2010, while Redtone and Asiaspace only managed selective
rollouts with patchy services reported. We see greatest upside from the merger between
YTL Communications and P1 as both have a decent base of subscribers as well as
command decent network coverage with potential for revenue and cost synergies.
NEUTRAL on the
sector. We are retaining our sector call given that valuations are not attractive
when stacked against regional comparables, albeit the local sector is supported
by the decent dividend yields of the telcos. Our top pick in the sector remains
AXIATA (BUY, FV: RM5.60) and TM (BUY, FV: RM5.50), given their stronger
earnings outlook and potential for active capital management. We maintain our
NEUTRAL ratings on both Digi and Maxis with
Fair Values of RM4.00 and RM5.10
respectively as the recent share price re-ratings of both stocks have probably
factored in various positive operational and dividend themes for now. Digi and
Maxis trades at FY13 PERs of 18-20x, which are at a premium to those of
regional mobile operators.
Source: OSK188
Source: OSK188
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