KUALA LUMPUR: The Malaysian Communications and Multimedia Commission (MCMC) has set the price of the 700MHz spectrum price at RM43.1mil per MHz (paired) which is lower than CIMB Equities Research's initial estimate.
The research house said on Thursday this was largely the same as the per MHz pricing for the 900MHz (RM43.6mil/MHz), which was recently reallocated and lower than its initial estimate, which was based on a 20% premium to 900MHz.
“The annual fee is also set at a reasonable level and consistent with the previous 900/1800MHz reallocation,” it said.
The MCMC's evaluation criteria (i.e. operating track record, infrastructure sharing capacity/capability) seem to suggest that the Big 4 mobile operators (including U Mobile) stand a better chance of being assigned the 700MHz.
However, at this stage, the research house said there were still uncertainty over who are the eventual winners as the MCMC has not decided on the bandwidth size to be allocated to each winner (hence, the number of winners) and smaller players could still impress MCMC with their preliminary business plans.
CIMB Research said assuming the MCMC decides to allocate 2x10MHz each to four telcos, then the upfront fee would be RM431mil and annual fee would be RM37mil per annum for each winner.
The spectrum amortisation, annual fee and interest cost (assuming 100% debt funded at 5% per annum) would add up to a total of RM66.3mil (post-tax) in FY19F.
“If Maxis, Axiata and Digi win, this would be equivalent to a manageable 3.4%, 2.9% and 4.2% impact on their FY19F net profit, respectively. In addition, the extra cost could be offset by possibly better capex efficiency, due to the additional capacity and coverage from the 700MHz spectrum.
“If we factor in the upfront payment, Maxis/Axiata/Digi’s net debt/EBITDA could rise marginally to 1.64 times/ 1.55 times /0.75 times (from 1.55 times /1.51 times /0.60 times) by end-FY18F.
"Given that this is below two times (the ceiling set by most telcos), there should be no need for equity fund raising to pay for the 700MHz spectrum, in our view,” it said.
CIMB Research is keeping its Neutral rating on the Malaysian telco sector. While competition appears to have quietened down in the last two months, previously launched aggressive offers remain on the market, making a big rebound in industry revenue unlikely.
It said the sector trades at an average FY18F enterprise value/operating free cashflow (EV/OpFCF) of 16.9 times, which is in line with the Asean telco average. FY17F-18F dividend yields of 3.1-3.6% are on par with Asean telco peers.
“We have an Add rating for Axiata, which is our top Malaysian telco pick and Hold ratings on Maxis and Digi. Downside/upside risks to our sector call are higher/lower-than-expected market competition,” said the research house.
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