Telecommunication sector is an Overweight on i) stable dividend ii) continuing positive net addition both prepaid and postpaid and iii) potential wider margin of 4G factor iv) goodies from Budget 2014, HSBB 2.0. Telekom is our Top Pick with a BUY call and fair value of RM6.20.
Penetration rate growing wild. The penetration rate refers to the total subscriptions divided by the total population and multiplied by 100.
A penetration rate over 100% occurs because of multiple subscriptions by users. According to GSM data, there are 3.2 billion mobile subscription worldwide currently, growing wild from 2.3 billion at the end of 2008 or CAGR of 8.3% headed by developed nations. In developed nations alone, penetration rate reached 128% led by rapid mobile adoption in China and India, the world's most populous nations followed by developing nations at 89.4%. The growth in global mobile subscription mirrored the accessibility to the telecommunication network and growing cheap handphones in the market. Despite challenging economic headwinds in many regions, the global penetration rate is expected to grow over the next five years at CAGR of 7.6%. In Malaysia alone, penetration rate reached 146.1% as at September 2013 led by affordable handphones and competitive rates.
4G landscape. To begin with, the resurgence of 4G LTE in Malaysia has started since December 2012 as The Malaysian Communications and Multimedia Commission (MCMC) announced the allocation of the much-anticipated 2,600MHz wireless platform, thus paving the way for Malaysians to enjoy 4G LTE (Long Term Evolution) services which is said to be the fastest wireless network offered in the market. Malaysia‟s 4G LTE development is moving at slower rate compared to other developed and developing countries as various issues have dampened the LTE development including spectrum pricing issue and lack of network infrastructure that could support 4G LTE network.
Variable spectrums awarded. To recap, eight companies have been awarded with various spectrums by MCMC namely Maxis, Celcom Axiata, DiGi, Packet One (P1), REDTone, U Mobile Sdn Bhd, YTL Communications and Puncak Semangat Technology Sdn Bhd. The spectrums awarded have sparked uproar from telco players as 7 players except for Puncak Semangat, received 20MHz, whilst Puncak Semangat secured 40MHz for 2.6MHz bandwidth.
Limited upside at this juncture. With the introduction of LTE, we believe it is too early to judge the outcome as telcos are still in deployment stage in selected areas namely Klang Valley, Penang, Johor Bahru, Kota Kinabalu and Kuching.
Maxis launched aggressive marketing. Maxis became the first to unveil their 4G LTE plan in April 2013 followed by Celcom in June 2013 and Digi in September 2013. Based on the latest
number, Maxis has successfully registered 335k of new 4G LTE subscribers from Klang Valley areas. For Celcom, 4G LTE is still in deployment stage which is limited to USB modem which later extended to smart phones users. As at October 2013, Celcom LTE coverage has reached 30% of population covering 1,200 sites from 33 districts nationwide. The company aims to spend RM300 million capex for 4G network.
Goodies from Budget 2014. During the Budget 2014‟s announcement, there were three big projects for telecommunication announced namely i) implementation of second phase HSBB project in collaboration with the private sector involving an investment of RM1.8 billion ii)1,000 telecommunication transmission towers to be built over the next 3 years, with an investment of RM1.5 billion iii) New underwater cables to be laid within 3 years to improve internet access in Sabah and Sarawak costing RM850 million. We believe the HSBB2 project amounting RM3.4 billion will the bull-eye target by telcos, as the project aims to improve the coverage in the urban areas and further RM1.6 billion to improve establish HSBB connection.
TM declined to give further comment. We believe TM will be in the frontline for the HSBB2 project given its experience and expertise in handling the current HSBB project. Given the huge amount announced for the project, we believe the project will be a collaboration between private and public sector.
Recommendation. We have an Overweight call on telecommunication sector as fund managers will be looking for safe haven to rebalance their portfolios and the stable dividend by the telco will be the best bet. Driven by steady net addition, proliferation of data usage and the emergence of 4G would make the sector a darling in 2014. Telekom is our Top Pick with a target price of RM6.20 followed by Axiata with a fair value of RM7.70.
Source/Extract/Excerpts/来源/转贴/摘录: M & A Securities
Publish date: 07/01/14