Friday, January 29, 2016

Telcos hit by hefty bill to retain their spectrum

As reported in the Star newspaper, the government has announced that it will optimise the revenue from telecommunication spectrum through a redistribution and bidding process that will be implemented soon. This was announced under the revised Budget 2016.

According to a CIMB report, if "the MCMC uses the same reserve price benchmark (as per the recent Thai auctions), the minimum Maxis, Celcom and DiGi would have to pay to retain their 900MHz and 1800MHz spectrum are RM2.37bn, RM2.43bn and RM1.46bn, respectively. This would shave off 4.7% of our target price for Maxis, 4.2% for Axiata and 3.8% for DiGi."

The reaction from the market was swift. All three stocks dropped substantially this morning. Both Maxis and Axiata broke their strong horizontal support at RM6.20 & RM5.60 respectively. Digi dropped less and may find support at its horizontal line at RM4.60. As the current prices are still above the revised fair prices for all three counters (as per CIMB's report), it is best to avoid these stocks for now.

Chart 1; Axiata's monthly chart as at Jan 29, 2016_10.45am (Source: ShareInvestor)

Chart 2: Maxis's monthly chart as at Jan 29, 2016_10.45am (Source: ShareInvestor)

Chart 3: Digi's monthly chart as at Jan 29, 2016_10.45am (Source: ShareInvestor)

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Axiata, Digi & Axiata.


steve said...

hi Alex, may I know your opinion on Vivocom? Thanks!

Alex Lu said...

Hi Steve,

My previous take on Vivocom (formerly, Instacom) remains.

This stock (let's call it Instacom/Vivacom) rallied from RM0.08 in September 2015 to a high of RM0.34 in November due to its acquisition of Vivocom (the private entity then). Shortly thereafter CIMB issued a strong buy report (see the Malay Mail report provided by the link below). While I am cautiously positive on the stock, I am not as bullish as the analyst who wrote the report.

In my opinion, there are 2 areas of weakness in that report:
a) We were asked to accept the idea that Vivocom/Instacom is a great company that deserves a fair value of RM0.72 per share. That's because it owns a controlling stake in Vivocom (the private entity). With a share base of 2.34 billion, Vivocom/Instacom is worth RM1.68 billion. If this is true, why did the owners sell their 78.6%-stake in Vivocom (the private entity) for a mere RM133 million - thus valuing the entire company at RM169 million- to Instacom/Vivacom?

b) We were told that Vivocom (the private entity) is an in-house contractor for CRCC. And, because of that, Instacom/Vivacom would secure contracts on a negotiated basis with higher profit margins. It didn't clearly state why or how is Vivocom deemed to be an in-house contractor. Is it because it's owned by CRCC or friendly parties? Either way, it is hard to accept that this special arrangement should lead to higher profit margin for Vivocom. A higher profit margin for Vivocom would naturally come at an expense to CRCC. Is this how you treat your 'parent' or 'friends'?

In view of the above, one should be careful in play this stock.

steve said...

Thank you for your comments Alex.

If the cimb's paper making any sense, that can only be vivacom has no choice but to accept the extremely cheap deal to let instacom buying its shares because of instacom's "power to grab business deals"....political stuff.

Agree that these kind of risk is high simply because the company's capability is easily substitute (no strong brand name, no unique capability).

ronnie said...

Alex. You hit the nail on the head.

Why would Vivicom be in-house contractor for CRCC? Many dummies out there I guess.