News

Axiata announced that its wholly owned subsidiary, Celcom Axiata Berh and and Celcom Mobile Sdn Bhd (a wholly owned subsidiary of Celcom) had on 1 February 2016 received a notice of spectrum reallocation from MCMC for both the 900MHz and 1800MHz bands.

The following frequency bands will be allocated to Celcom by way of Spectrum Assignment where: (i) 890MHz to 900MHz paired with 935MHz to 945MHz with effect from 1 July 2017, and (ii) 1745MHz to 1765MHz paired with 1840MHz to 1860MHz with effect from 1 January 2017.

The spectrum reallocation will result in Celcom’s 900MHz band lowered to 2x10MHz (from 2x17MHz previously) and 1800MHz band reduced to 2x20MHz (from 2x25MHz previously).

MCMC has also earlier announced that the 900MHz and 1800MHz bands will be assigned for a fee for a period of 15 years. The fee for the spectrum assignment is currently being determined.

Comments

The spectrum reduction on Celcom’s 900MHz and 1800MHz bands is well within our as well as the market expectations.

The quantum of reduction is similar to Maxis, where Celcom has an identical frequency under both 900MHz and 1800MHz post the spectrum reallocation.

Management has earlier highlighted that the spectrum reduction could potentially lead for higher capex of c.RM1b-RM2b (as a result of more sites and equipment required) over the next 10 years, assuming no additional spectrum is made available during the period.

Given the country’s big three celcos had announced their respective new spectrum allocation, thus suggesting that U Mobile would be assigned the remaining frequencies (i.e.2x10MHz in the 900MHz and 2x15 in 1800MHz bands) by the authority.

All in all, we believe the latest spectrum re-allocation plan has provided a fair level playing field to the incumbents and is healthy for the industry over the longer-term.

Outlook

Increasing competition, currency fluctuation and regulatory challenges will continue to be key challenges faced by Axiata’s OpCos.

Forecast

Unchanged, pending Axiata’s results due on 17th February.

Rating

Maintain at OUTPERFROM

Valuation

Maintain Axiata’s TP at RM6.30 based on a targeted FY16E EV/forward EBITDA of 7.8x (representing -1.0 SD below its 4-year mean).

Risks to Our Call

Regulation and currency risks in its overseas ventures.

Source: Kenanga Research - 4 Feb 2016