KUALA LUMPUR: CIMB Equities Research maintains its Neutral sector rating and keep its target prices for Malaysian telcos, pending the Malaysian Communications and Multimedia Commission's (MCMC) final decision on spectrum fees.
The research house said on Thursday that Digi’s share price does not fully reflect the potential cash outflow for spectrum fees and there is up to 8.4% downside risk if its assumptions materialise.
“Meanwhile, Axiata’s and Maxis’s share prices appear to have largely priced in the risks. Axiata Group remains our top Malaysian telco pick,” it said.
On Feb 1, the MCMC announced the redistribution of the 900/1800MHz spectrum to Maxis, Celcom, DiGi and U Mobile. The biggest beneficiary was U Mobile, which will get access to lower frequency spectrum, while DiGi benefits from extra 900MHz spectrum.
CIMB Research said said the MCMC could announce the spectrum fees by mid-year.
Based on the reserve price from recent auctions in Singapore/Thailand, telcos may need to pay RM1.34bil to RM1.65bil for the 900/1800MHz spectrum.
They may also have to pay RM1.59bil for the 700/2100/ 2600MHz spectrum when it is reallocated in 2017. elcos may have to pay RM1.34bil to RM1.65bil for 900/ 1800MHz and an extra RM1.59bil for 700/2100/2600MHz.
“Spectrum payments should have a manageable impact on telcos’ balance sheets,” it said.
CIMB Research said given the likely new spectrum slot arrangements, Celcom will have more options to select partners for potential future spectrum pooling,” it said.
The MCMC has allocated 5MHz in the 900MHz band for the Malaysia-Singapore High Speed Rail’s communication system.
Assuming equal five-year installments, the net debt/EBITDA of Malaysian telcos should only increase by 0.1 times to 0.2 times in FY16-18 (0.3 times-0.4 times, including 700/2100/2600MHz spectrum payments).
“However, there is risk that the spectrum fees may be front loaded to more substantially plug the Malaysian government’s budget deficit.
“If so, our scenario analysis suggests that the balance sheets of Maxis and Axiata may become stretched,” it said.
Factoring in only the 900/1800MHz spectrum fees, the potential negative impact on CIMB Research's FY17-19 core EPS was manageable at 3.9%-5.8%. If it includes the 700/2100/2600MHz spectrum, the potential impact could be a larger 4.1%-11.9%.
The biggest impact will be on Digi (smaller profit base) and smallest impact on Axiata Group (diversified regional operations).
“Our FY17-19 dividend yield forecasts may be reduced by up to 40 to 60bp.
“Our DCF-based target prices for Maxis, Axiata and DiGi may be cut by 1.7%, 1.6% and 2.1%, respectively, if we factor in the 900/1800MHz spectrum fees.
“If we include the spectrum fees for 700/2100/2600MHz, the potential hit is 3.3%, 3.2% and 3.5%. While telcos are in discussion with the MCMC to lower the 6% USP fee to neutralise the spectrum fee impact, we gather from our industry sources that the chances are slim,” it pointed out.
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