PETALING JAYA: The potential consolidation of Celcom and Digi.com Bhd in Malaysia will eventually reduce the number of cellular competitors to four from five.
According to AmInvestment Bank Research, the eventual merged entity is unlikely to initiate further price cuts that will only erode its bottom line.
“Depending on the Malaysian Communications and Multimedia Commission’s (MCMC) decision regarding the reduction of competition in the cellular segment, the merged entity is envisaged to secure synergies up to RM15bil–RM20bil over a period of five years in its present value from network efficiencies, cost avoidance, procurement optimisation and economies of scale,” the research house said.
The Telenor-Axiata entity’s combined US$6bil capital expenditures (capex) could be optimised while procurement synergies could lead to lower overall costs.
This, together with the higher market capitalisation of the merged entity also offers an opportunity for Khazanah Nasional Bhd to monetize its 40% equity stake in Axiata, it said.
Meanwhile, commenting on TELEKOM MALAYSIA BHD (TM), it noted that TM had demonstrated a surprisingly sharp drop in first quarter operating costs, supported by the group’s transformative Performance Improvement Programme.
“This in an ongoing initiative that has been carried out since mid-2018, leading to cost optimisation in unifi mobile’s domestic roaming, contract renegotiation, marketing, business procurement and manpower,” it said.
“We do not expect any significant cost escalation from the appointment of TM, Celcom and Maxis as the second half of 2019’s interim internet service providers for 10,000 schools nationwide after the expiry of YTL Communications’ 1BestariNet phase 2, given the existing established network infrastructure,” the research house said.
In its sector report on the telecommunications industry, AmInvestment Bank Research maintained its overweight call on the industry on the multiple synergies from the potential Telenor Asia-Axiata merger.
It said that this will significantly alleviate price competition that has been eroding the sector’s margins over the past three years.
The research house said it reiterates its “buy” calls for Axiata Group Bhd with a fair value (FV) of RM5.40 and Digi with a FV of RM5.45. Maxis Bhd has a FV of RM5.60 and TM an FV of RM4.08, remaining a “hold.”
It also cautioned that the sector can be de-rated on the resumption of revenue declines amid a declining mobile subscriber base while fixed broadband prices remain relatively high regionally.
“Besides the resumption of mobile wars if the Malaysian Communications and Multimedia Commission were to impose any significant restrictions on the Telenor Asia-Axiata merger, the fixed broadband segment under TM’s unifi, Maxis’ Home Fibre and Time dotCom could still experience declining average revenue per user,” it noted.
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