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RHB Research 2015-07-08 (Telco): One Up For The Republic. Maintain BUY on M1, Pending Review Post 2Q15 Results.


  • 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/




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