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Tuesday, September 20, 2016

Shareholding change in telco giants?

Shareholding change in telco giants?
By Kamarul Anwar / The Edge Financial Daily | September 20, 2016 : 8:53 AM MYT
This article first appeared in The Edge Financial Daily, on September 20, 2016.

KUALA LUMPUR: A Middle Eastern telecommunications giant’s reported plan to sell its indirect substantial stake in Maxis Bhd has raised the possibility of another shareholding change in the increasingly competitive sector, shortly after Telenor ASA was said to be reviewing its investment in DiGi.Com Bhd.

Bloomberg yesterday said, quoting sources, that Saudi Telecom Co was “gauging interest” in its equity ownership in Maxis’ parent Binariang GSM Sdn Bhd. Saudi Telecom hasn’t started a formal auction process for its Binariang stake and could decide to keep it, according to the newswire’s sources.

A quick check with the Companies Commission of Malaysia showed that Saudi Telecom’s STC Malaysia Holding owns 5.01 billion shares or 25.03% in Binariang, which is controlled by billionaire T Ananda Krishnan. This effectively gives Saudi Telecom a 16.25% control of Maxis, as Binariang’s stake in Malaysia’s second-largest telecommunications company by market capitalisation amounts to 64.91%.

The possible stake sale, however, seems to bode well for Maxis shares, which have risen by 5.25% since July despite the numerous “sell” calls stamped by analysts. The FBM KLCI constituent jumped 13 sen or 2.16% to close at RM6.15 yesterday, contrary to the overall index’s 0.08% fall.

Maxis as a whole is valued at RM46.19 billion, thus making Saudi Telecom’s stake worth RM7.51 billion.

DiGi faces a different fate. After Bloomberg’s report of parent Telenor ASA reviewing options for its 49% stake in DiGi surfaced last Friday, the group’s share price fell to RM4.81 at the closing yesterday — its intraday low and also its lowest since July 25. This brought DiGi’s market capitalisation to RM37.4 billion.

According to the sources quoted by the report, Telenor was at an early stage of reviewing its DiGi investment. The Norwegian telecommunications group may explore a joint venture with Asian carriers or a sale of its stake if it doesn’t find the right partner.

The possible shareholding changes in two of Malaysia’s “Big Three” telecommunications providers might conjure negative sentiment towards the sector, which is facing a transformation that could over time constrict the incumbents’ profit margins.

While the weakened consumer sentiment will eventually recover and the thinner-margin data business will grow to offset deteriorating voice and SMS revenues, new players hungry to build market share have engaged in price wars to lure customers to switch brands.

“In the mobile segment, price-focused competition remained as service revenue declined for the third consecutive quarter. This appeared to be more prevalent in the prepaid segment, as all three incumbents reported flat to declining average revenue per user,” said TA Securities Holdings Bhd telecommunications analyst Paul Yap in a Sept 2 market strategy note.

“Maxis, DiGi and Celcom Axiata Bhd also faced quarter-on-quarter prepaid net churns, suggesting potential market share gains from U Mobile Sdn Bhd,” said Yap.

U Mobile is seen as a net beneficiary from the government’s decision earlier this year to revise the telecommunications companies’ allocated spectra, as it previously had none of the finite resource.

Even though analysts have said the new spectrum fees should not saddle the incumbents with a heavy financial burden, they will also have to worry about Telekom Malaysia Bhd’s webe and YTL Power International Bhd’s YES making a dent in the market share.

TA Securities recommended investors to “sell” both DiGi and Maxis, with their target prices set at RM5.80 and RM4.95 respectively. Yap said management of both telecommunications providers expect their revenue and earnings before interest, taxes, depreciation and amortisation to be flat this year.

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