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Wednesday November 14, 2012

Analysts see opportunities in telecom sector

PETALING JAYA: CIMB Research is bullish on the telecommunications sector despite the recent weakness in share prices.

It thinks that the fall in share prices present an opportunity to accumulate these stocks at better values.

This follows after Axiata Group Bhd, DiGi.com Bhd, Maxis Bhd and Telekom Malaysia Bhd share prices fell 9%, 6%, 3% and 6% respectively.

“We are not aware of any adverse industry developments that could account for the sell-off. Instead, we gather that institutional funds were locking in handsome gains before the year closes,” CIMB analyst Kelvin Goh wrote in his report.

He added that telecom stocks offered “higher dividend yields” of between 4.3% and 6% from 4%-5.8% previously and that their fundamentals remained unchanged.

Despite the opportunity to buy, Goh said he still maintained his neutral stance on the sector with Axiata being his top pick followed by DiGi.com.

HwangDBS analysts Wong Ming Tek and Chin Jin Han said Axiata was focusing on optimising group functions via cost savings through collaboration and partnerships and pushing new value-added services such as Dialog’s mobile payment services.

Wong and Chin, however, noted that near-term margins might come under pressure with XL reducing its rates to regain market share. But they are optimistic that Axiata’s initiatives should bear fruit in the medium to long term.

They had maintained their hold rating on Axiata with a one-year target price of RM5.80, adding that the potential near-term catalyst for the stock was the deployment of the long-term evolution or upgraded 4G network and higher dividend payout.

According to a Bloomberg survey of analysts, many research houses were bullish on Axiata with 17 buy calls, 14 holds and only one research firm rating the stock as a sell.

While the survey showed that DiGi.com had 10 sell ratings, 17 holds and 6 buy calls, analysts were mostly neutral on Maxis with 19 hold calls, eight buy ratings and seven rated the Maxis stock as a sell.

CIMB noted that Maxis could lag behind its rivals again in growth as it continued to lose lower-end postpaid customers to its competitors while TM might “struggle to be re-rated to its former heights” due to headwinds from competition in fibre broadband from Maxis and possibly a higher retirement age.

“We think enforcement of the Minimum Retirement Age Act which will raise the retirement age to 60 is imminent,” CIMB notes.

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