UOB Kay Hian: Celcos to focus on bundled products with Samsung, Apple

by **hlk** Mon 10 Sep 2012, 12:42

KUALA LUMPUR: UOB Kay Hian Malaysia Research expects cellular phone companies to focus on bundled products, with Samsung and Apple introducing new devices in the second half of 2012.
"The
regulator is expected to award LTE spectra to celcos by December 2012,
which potentially stimulates demand for broadband when network quality
improves with larger bandwidth. Also, Maxis is expected to jointly launch IPTV products with sister company, Astro, in Q4, 2012," it said.
UOB
Kay Hian Research, in its sector report, reiterated its Overweight
recommendation on the telco sector for its stable earnings and cash
flows as well as attractive defensive dividend yields.
It said on Monday high-yielding DiGi
and Maxis are good shelters from the global economic turmoil as well as
from potential market consolidation, for example when the Malaysian
general election is announced. The research house said while all three
Malaysian celcos performed in line with our expectations, DiGi stood
out for delivering a 23% yoy improvement in 1H12 core earnings despite
its deliberate move to slow dongle broadband and competitive pressures
in the IDD segment from Maxis.
It said in comparison, Celcom and Maxis delivered 10% and 1% growth respectively.
Understandably,
Maxis took an aggressive stance in the market this year that resulted
in higher marketing and telecommunication expenses. Celcom's growth
resulted from a low base in 1H12 direct cost.
"DiGi is our sole
BUY with a RM5 DCF-based target price and potential 5% net dividend
yield. We continue to like DiGi for the potential upside in dividends
from rising forward earnings, which is a key catalyst. It is the only
net cash telco, with the potential for more capital repayment.
"HOLD
Maxis (Target: RM7.20) as upside to its dividend distribution would be
capped since it is already paying more than 100% of earnings. Axiata's (HOLD/RM6.01/Target: RM5.90) and Telekom Malaysia's (TM) (HOLD/ RM6.00/Target: RM6) yields are near the 3.5% risk-free rate," it said.