We are maintaining our NEUTRAL view on the Telecommunication
sector. Followed the award of 2.6GHz spectrum, celcos will likely to unveil
their respective LTE services roadmaps in the coming weeks or months, where we
believe online video service could be a key focus, even as the local 4G
eco-system is not well prepared yet. Data traffic is expected to rise
tremendously when the 4G eco-system is in place and this will ultimately
benefit the network backhaul providers (i.e. Telekom Malaysia (“TM”) and Time
dotCom) in the long run due to the
higher data offloading demand. As for the access pricing review, we are
having lesser concerns now as compared to a month ago after attending the
briefing conducted by MCMC recently. Thus, we have raised our target prices for
both TM (OP, TP: RM6.50 (from RM6.25 previously) and Axiata (MP, TP: RM6.50
(from RM6.10 previously) based on higher targeted FY13 EV/EBITDA ratios of 7.9x
and 8.0x respectively. Our Maxis (MP, TP: RM7.00) rating and target price
remained unchanged meanwhile due mainly to its sluggish earnings outlook
despite the regulation cloud being removed. In addition, we have also
maintained our Digi (MP, TP: RM4.95) call given the muted earnings impact from
the proposed access pricing review to it as per management’s guidance and the
lack of any near-term share price catalysts.
3QFY12 results
snapshot. Local telco players posted a mixed 3QCY12 results. Axiata is the only
incumbent which recorded a better-than-expected result due to the higher
turnover at its key operating companies and higher associates contributions.
Digi and TM’s results, meanwhile, were within expectations while Maxis
continues to fail to deliver due to sluggish revenue growth and EBITDA margin
compression as a result of higher device sales.
Lesser concerns on
the access pricing review. We understand that the public inquiry for access
pricing has ended in mid-November and MCMC is expected to release its findings
in December. All the telco players will then have another opportunity to review
the access pricing scheme again before the authority decides on the final
mandated the prices in 1QCY13. The key rationales to conduct an access pricing
review are to enhance telcos efficiency and lower interconnection rate, thus
benefit to the subscribers. Nevertheless, this does not mean that the authority
has an intention to penalize the telco players. In fact, the mandated prices
will likely to be concluded at neutral to slightly negative from telco
perspective, according to MCMC.
2G and 3G spectrum's
re-farming could come in latter rather than earlier. While there is a need to re-farm the spectrum
to enhance the efficiency by all telcos, the re-farming exercise is likely to
come in latter rather than earlier. Reasons being are 1) the entire spectrum group
has yet to expire although some of the individual company spectrums may expire.
This means, for example, the 900MHz spectrum re-farming will only take place
after January 2015 despite Maxis’ 900MHz expiring soon at end -2012; and 2) the
re-farming exercise will only commence should ALL the subscribers (under the
particular spectrum, i.e. 2G) migrated to other spectrums (i.e. 3G
platform).
Award of the 2.6GHz
spectrum. MCMC has finally announced
the allocation of the much anticipated 2.6 GHz spectrum band to eight players.
While the sequence of the spectrum bandwidth remains vague at this juncture, we
expect the spectrum awardees to further collaborate with their bandwidth
neighbours to further enhance their spectrum efficiency. All the mobile
operators had earlier indicated that their networks were ready to deploy LTE services,
of which Celcom and Maxis have committed to roll out 4G services over the next three
to six months in the Klang Valley, Penang, and Johor. We believe the remaining incumbents
will unveil their respective 4G services soon.
Optimal capital
structure remains a wild card to fuel capital management. While all the
telco incumbents are set to record dividend yields of 3.7%-6.2% in FY13, we do
not discount the possibility that the industry players could potentially reward their shareholders further
via optimizing their capital structure. Based on our observation, TM tends to
raise the highest cash/share of 46.4 sen followed by Axiata (37.0 sen), Maxis
(27.4 sen) and Digi (9.6 sen) should they opt to achieve their own respective
maximum optimal capital structure.
Source: Kenanga
No comments:
Post a Comment