- The IDA’s plan to reserve 60MHz (of the 225MHz spectrum being put up for auction) for a new fourth operator is major coup for MR, which is expected to quickly roll out its mobile service before the mandated Oct 2018 deadline for nationwide coverage.
- Maintain NEUTRAL because, while the latest proposals effectively put paid to expectations on the rising competitive risks in the sector, we think concerns may have already been priced in.
MyRepublic Ltd (MR) to the fore.
- The Infocomm Development Authority (IDA) plans to offer a total of 225 megahertz (MHz) of spectrum in 700MHz/900MHz/2300MHz/2600MHz bands for auction in 2016. The allocations include 60MHz (700MHz/900MHz/ 2300MHz) set aside for a new fourth mobile network operator (MNO) to be auctioned off separately.
- The regulator has called for public comments on its response to an earlier consultation paper.
Our view.
- The proposals effectively confirm earlier concerns and expectations on the impending entry of a fourth mobile entrant, although it should not come as a total surprise to the market.
- We believe the regulator’s decision to reserve both low and high frequencies for a single new operator is overridingly positive for MR, which has been lobbying actively for spectrum and, in our view, the sole recipient.
- Although the regulator did not acquiesce to the requests by MR for domestic roaming/infrastructure sharing, we think the combination of 20MHz of 700MHz/900MHz is sufficient for MR to get up to speed relatively quickly and pre-empt potential delays in the use of the 700MHz band.
- While we acknowledge the rising competitive risks in the industry from a disruptive new player, we think the more superior network of the incumbent operators and the bundled offerings ought to mitigate potential downside to revenue and earnings.
Pricing is fair.
- The IDA has decided not to auction off the 800MHz band pending a further re-farming. The reserve price per block (2x5MHz) for the general 700/900MHz spectrum of SGD20m is 25% higher than the SGD16m per 5MHz block for the 1800MHz in the 4G auction exercise conducted in 2013, reflecting its better propagation characteristic.
- We expect demand for the 700MHz (a beachfront asset) to be strong, although there should be sufficient spectrum to go round. Meanwhile, there could be more competition for the 900MHz band.
- We expect further clarity on the spectrum exercise in the next few months, including spectrum caps to be imposed.
Maintain NEUTRAL.
- We believe concerns over the threat of a new fourth operator have been priced in to a certain extent following the sharp share price de-ratings in recent months/YTD.
- We keep our market contrarian BUY recommendation on M1 (M1 SP, TP: SGD4.40), pending a review post the release of its 2Q15 results. The stock is supported by a dividend yield of over 6%.
(Singapore Research)
Source: http://www.rhbgroup.com/
