Axiata - Shortlisted to bid for DTTB

News   The press reported that four telco companies (Celcom Axiata, Puncak Semangat, REDtone and Sapura Group) were believed to have been shortlisted for the digital terrestrial television broadcasting (DTTB) bidding. 

 The above-mentioned four telcos will be required to submit a detailed spectrum study and frequency plans during the second bidding stage.

 Eventually, there will be only one winner after the second-stage evaluation is done. 

 DTTB is the migration of FTA channels from analogue to digital format, which will then offer digital TV, HD TV and other related TV services, including mobile and pay TV.

 The analogue TV switch-off date has been set for the end of 2015 but the entire migration journey will probably be completed only by 2020.  The frequency bands allocated for DTTB are from 174 MHz to 230 MHz and 470 MHz to 742 MHz. 

Comments   There are a total of eight players (five telcos and three media companies) submitted their bids during the first stage. The above-mentioned shortlisted list suggests that P1 is now out of the bidding process. 

 It is unclear of the outcome of the other three media companies’ bids (i.e. Astro Productions, iMedia, DTV) at this juncture. 

 We understand that the whole project will be privately funded and is likely to cost over RM1.0b. The company that wins will have to supply set-top boxes, which could cost as much as RM300m. 

 Funding is not an issue in our view should Celcom win the project given Axiata has lately issued USD1.5b  in multi-currency Sukuk. 

 We understand that the final award of the DTTB will be announced in mid-CY13.  

Outlook   The group’s outlook has improved somehow recently, albeit the competition in both its local and overseas ventures continuing to remain strong. Nevertheless, the prolonged regulation issues in both India and Bangladesh may continue to put barriers in its operations going forward. Furthermore, the expected continuing strengthening of Ringgit Malaysia, following the release of QE3, may result in the group bearing some currency translation losses going forward.

  

Forecast  No changes in our FY12-FY14 earnings forecasts. 

Rating   Maintain MARKET PERFORM

Valuation   Maintaining target price at RM6.33 based on an unchanged targeted FY13 EV/forward EBITDA of 7.7x (+2SD) 

Risks   Regulation risks in its overseas ventures.

Source: Kenanga