Active M&A possible among telcos

By SHAZNI ONG / Pic By TMR

Fair value of telecommunication stocks on the local bourse, coupled with a challenging industry outlook, could push industry players to explore merger and acquisition (M&A) exercises this year.

Kenanga Research said shares of a few telecommunication companies (telcos) are already trading at fair value, which would be ideal in any M&A deals.

“While there is no solid corporate exercises discussion among the players thus far, we would not be surprised should the incumbents consider this route, judging from the current challenging industry
outlook,” the research house noted in an industry coverage.

“Our recent M&A study on the telecommunication sector suggested that the current prices of Maxis Bhd and DiGi.Com Bhd have already traded at fair value, while Axiata Group Bhd, Telekom Malaysia Bhd (TM) and OCK Group Bhd may have room for upside.”

Kenanga Research also retained a ‘Neutral’ call on the country’s telco sector due to uncertainties in policies, which could keep investors at bay in the first quarter of 2019 (1Q19).

Besides uncertainties in policy direction, the upcoming 700MHz spectrum reallocation will continue to pose a great challenge in 1Q19.

The firm said operational environment in the sector could, however, recover in 2Q19 and 3Q19, if the government can successfully implement the National Fiberisation and Connectivity Plan (NFCP).

The research firm is positive on the federal government’s RM1 billion allocation in Budget 2019 to further develop fibre-optic infrastructure and to ensure effective distribution of spectrum throughout Malaysia.

“While MCMC (the Malaysian Communications and Multimedia Commission) has yet to announce the detailed work plan under the NFCP, we understand that the authority has the intention to focus on 17 key ambitions categorised under four initiatives.”

Kenanga Research asserted that the government may have the intention to nationalise the telecommunication infrastructure nationwide, in order to speed up the country’s digitalisation process.

The decision could be made as the government could struggle to ensure buy-in from stakeholders to roll out infrastructure as public utility to ensure the success of NFCP, the research firm noted.

“Should the intention materialise, the sector’s incumbents (especially TM) could potentially unload a large part of their future capex (capital expenditure) requirement, especially in fiberising their network assets.

“Having said that, the source of funding, as well as the structure of the proposed scheme would be vital factors to determine the success of the nationalisation plan, if any,” it added.