Telco tie-up could lead to more dividends

While the network and infrastructure collaboration between Celcom Axiata Bhd and DiGi.Com Bhd promises to bring about cost savings for the two companies, it is still early days to know if this will translate into better dividends from both companies, analysts said.


“It’s short-term neutral but potentially long-term positive, depending on the finalisation of the plan, and if and when the third stage will be achieved,” a telecommunications analyst with a foreign research house pointed out.

“Before we reach that stage, it is difficult to assume that there will be significant savings that can translate into better dividends,” he added.

To recap, the two telcos signed a memorandum of understanding (MoU) on Thursday for an active sharing of network and infrastructure, covering operations and maintenance, transmission and site sharing, and radio access network.

ECM Libra said in a research note yesterday that it was positive on the collaboration, subject to the signing of the definitive agreement by year’s end.

“Reducing costs will boost margins and generate bottom-line growth (for Celcom and DiGi), which has tapered off due to the saturating mobile market.

“Also, Celcom and DiGi stand to close the gap with Maxis, which currently commands the highest EBITDA (earnings before interest, tax, depreciation and amortisation) margins.

“In addition to operational expenditure savings, we believe both parties may benefit from significant capital expenditure savings as well, in terms of 3G rollout,” ECM Libra said.

The research house said this in turn would free up more cashflow for DiGi to sustain its high dividend payouts, as well as for Axiata, which is expected to announce a more concrete dividend policy in the third quarter of 2010 for its maiden dividend payment in FY2011.

But ECM Libra added: “As it is still early days, we make no changes to our earnings forecasts for now, pending the signing of a definitive agreement.”

Meanwhile, RHB Research in a report yesterday reckons that the collaboration would allow Celcom to expand its capacity requirement in city areas at lower cost, given that DiGi tends to have a stronger presence in urban areas.

“Celcom’s network cost has been around 9.6% of revenue since Q4 FY2009, which would suggest that in order to squeeze out further savings, some form of collaboration would be required,” it said.

It is still unclear at this point though as to how Maxis Bhd, the largest mobile operator in Malaysia, will react to the collaboration between its two competitors.

“Going by the trend seen in other developed markets, Maxis may possibly be left out in the cold,” ECM Libra said.

Another analyst pointed out though that Maxis still has the option of joining this collaboration. “Maxis could also embark on other cost-savings measures to ensure it, too, protects its attractive EBITDA margins,” the analyst added.

- thestar.com.my