Highlights

Celcom has entered into a Master Collaboration Agreement with Altel Communications SB, or better known as Puncak Semangat, for the purpose of collaborating to develop, establish, build, operate and manage shared infrastructure for their 4G / LTE services.

Celcom and Altel shall pool their respective 2×10MHz allocations in the 2.6GHz frequency spectrum awarded by MCMC into a common pooled spectrum for their exclusive use for establishment, deployment, building, construction, operation and maintenance of 4G / LTE.

Altel, who has a total of 2×20MHz allocations in the 2.6GHz band by MCMC, will consider Celcom’s request to utilize the remaining 2×10MHz bandwidth.

In return, Altel to appoint Celcom as the sole infrastructure and wholesale provider to ride on Celcom’s network as a MVNO, for the provision of domestic roaming services and RAN sharing agreements which are subject to further negotiations and eventual execution of proposed individual definitive agreements.

Aside from answering government’s call for further collaborations in the industry to bring down costs and acceleration broadband adoption, Axiata believes that this smart alliance will help them in achieving business goals and provide the best broadband speed in the market.

Comments

Not surprising and neutral on this development as we have anticipated this “marriage” (Please refer to our “2013 Outlook” sector report dated 14th Jan 2013).

As a greenfield player in an over-crowded market, it is strategic for Altel to seek an incumbent as partner rather than investing heavily into a business which is front-load CAPEX intensive and require lengthy maturity period.

Celcom is the natural partner for Altel as their awarded spectrums are adjacent with each other.

Do not expect 4G to be a rerating catalyst and expecting challenges including over-crowded market (with 9 players), service pricing (no premium over 3G) and market awareness (differentiating from WIMAX).

Catalysts

• Higher smartphone penetration boosting data ARPU.
• Strong growth in developing markets with low penetration.
• More cost savings from collaboration with DiGi.

Risks

Regulatory risks, FOREX fluctuations, competitive risks, OTT threats (voice and messaging substitution).

Forecasts

Unchanged.

Rating

HOLD, TP: RM6.63

Positives – Smaller OpCos (Dialog and Robi) are gaining tractions offsetting the shortcomings from XL, in-country consolidation and monetizing tower assets.

Negatives – OTT eroding margins of traditional services, exposure to Indian telecom market which is currently under close scrutiny by the government.

Valuation

Maintain HOLD call on the stock with unchanged SOP TP of RM6.63 (see Figure #2).

Source:Hong Leong Investment Bank Research- 5 Jul 2013