Highlights

Bernama reported that MCMC, along with Authority for Infocommunications Technology Industry of Brunei Darussalam (AITI), Direcktorat Jenderal Sumber Daya dan Perangkat Pos dan Informatika of Indonesia (DG SDPPI) and Infocomm Development Authority of Singapore (IDA), has jointly committed to harmonize the 700MHz band according to the Asia Pacific Telecommunity (APT) plan.

Announced by Singapore Minister for Communications and Information, Dr. Yaacob Ibrahim at the official opening of the annual Infocomm Media Business Exchange 2013 (imbX), he added that this will allow countries to meet the growing demand for mobile broadband (MBB), improve regional mobile roaming and provide more competitive MBB services.

The 700MHz digital dividend radio frequencies is expected to be available by 2020 after the switchover from analogue to digital broadcasting, will greatly strengthen connectivity within the region and beyond.

Comments

We are very positive on this new development considering the technological advantages that 700Mhz spectrum can contribute by complementing 4G LTE service delivery, including wider coverage, improved indoor quality (lower CAPEX and OPEX), universal 4G spectrum adopted worldwide enhancing service roaming, device compatibility and economy of scale.

Low frequency spectrum is one of the crucial factors which dictated the success and profitability of 4G service offerings by the US telcos (majority using 700MHz) compared to their counterparts around the world who were allocated with high frequency spectrums (1800MHz and 2.6GHz).

Malaysia’s 700MHz allocation for 4G MBB will be greatly dependent on the migration from analogue to digital terrestrial TV broadcasting (DTTB). This project is currently in the midst of tender process whereby MCMC has shortlisted down to 3 players, namely REDtone, Puncak Semangat and i-Media Broadcasting Solutions. The service is only expected to hit nationwide by end of 2015.

Therefore, until more development and information on this front, we remain status quo with our NEUTRAL stance on the sector while keeping our stocks ratings and target prices unchanged.

However, if this materialize in the near future, we may view this as a rerating catalyst and do not discount the possibility of upgrading the sector.

Catalysts

• Cost savings from partnerships.
• Managed services / outsourcing.
• Increased demand for wholesale bandwidth.

Risks

Irrational competition, regulation of tariffs, FOREX.

Forecasts

Unchanged.

Rating

Neutral

Positives – Low beta, defensive, strong cash-generation and dividends should underpin the share price.

Negatives – Potential irrational competition, regulatory risks, unable to monetize data, dumb pipes.

Top Picks

Maxis (BUY, TP: RM7.29).

TdC (BUY, TP: RM3.99).

Source: Hong Leong Investment Bank Research - 20 Jun 2013