Highlights

• Big-3 (Celcom, DiGi and Maxis) announced that they had accepted MCMC’s reissuance offer of its 2100MHz Spectrum Assignment (SA).

• Offer details: - 2×15MHz (same allocation as before, refer to Figure #1); - 16 years effective from 2 April 2018; - Upfront lump sum payment of RM118.4m; and - Annual fixed fee of RM50m.

• All three had made the upfront lump sum payment.

Financial Impact

• Since the Big-3 are estimated to pay circa RM50m for this spectrum under the current regime (based on site quantity), the only impact to earnings is only in the form on airwave amortization which amount to RM7.4m per annum. Axiata, DiGi and Maxis are estimated to see an impact of RM5.6m (Apr – Dec 2018) or -0.4%, -0.4% and -0.3%, respectively to their FY18F PATs.

• No funding concern, as all three incumbents’ gearing levels remain comfortable. Based on their latest financial positions, Axiata, DiGi and Maxis’ net debt to EBITDA ratios post payment are 1.37x (from 1.35x), 0.78x (from 0.74x) and 1.58x (from 1.56x), respectively.

Comments

• A positive development for the sector as the government’s stance remains very accommodative in airwave awards. This is in line with our expectations (refer to our sector report entitled “2018 Outlook” dated on 10 Jan 2018) although the pricing is much lower than our expectation.

• Axiata shared earlier that this SA would translate into total cost savings of at least RM252m or NPV of RM80m.

• With this extension, all 2100MHz concessions, including U Mobile’s will end concurrently by 2034.

• The additional 5MHz TDD under this SA announced by Maxis is not new (see Figure #1). We do not expect the cellcos to utilize it in the near term as this bandwidth is too small and the cost to converge FDD and TDD will outweigh the benefit (more capacity).

Catalysts

• Cost savings from partnerships.

• Managed services/outsourcing.

• Increased demand for wholesale bandwidth.

Risks

• Irrational competition, regulation of tariffs, FOREX.

Forecasts

• Unchanged as the impact is insignificant.

Rating

NEUTRAL ( ↔ )

• Maintain NEUTRAL on the sector due to the lack of positive catalyst in the near term. However, telco remains stable supported by resilient domestic demand. Their dependable dividend yield will be a plus point in a volatile market.

Top Pick

• DiGi (HOLD, TP: RM5.10) – (1) Highest dividend yielder; (2) Low frequency band to improve efficiency; (3) Shariah re inclusion; (4) Strong balance sheet to support spectrum fee; and (5) Prudent management.

Source: Hong Leong Investment Bank Research - 2 Feb 2018