Jumaat, 21 Mac 2014

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The Star Online: Business

Is TM a wireless giant in the making?

Posted: 21 Mar 2014 09:00 AM PDT

The ongoing speculation that Telekom Malaysia Bhd (TM) will be involved in a merger and acquisition (M&A) deal with Packet One Networks (M) Sdn Bhd (P1) gives rise to an interesting proposition - could a new wireless giant be created?

While details on the actual deal structure are scant for now, insiders point to one end result if it goes through: TM and P1 will collaborate to target the wireless broadband market and that TM, which has the much larger balance sheet, will eventually assume control over the new entity.

Spectrum wise, there is a fit between what the two companies would bring to the joint venture.

Spectrum basically refers to a range of radio frequencies. The bandwidth of a radio signal is the difference between the upper and lower frequencies of the signal. A spectrum belongs to a specific operator. Only that particular telco can operate in that space. Also to be noted is that lower frequency bands have a wider range of coverage but have smaller capacity in terms of the amount of data or voice signals that can be carried. On the flip side, higher frequency bands have capacities to carry 4G type services but have a lower range of coverage.

PI currently owns valuable swathes of spectrum in the 2.3GHz and 2.6GHz bands whereas TM has some spectrum in the much lower bands, namely 450MHz and 850MHz. (See table). Notes an analyst: "A collaboration could create a very powerful player given the combined low and high-frequency bands they have that can provide for superior coverage and capacity. Of course it is left to be seen if they can successfully derive the synergies".

Another analyst says: "We view the move as positive to TM since this gives it the opportunity to complement its fixed broadband services with a wireless platform."

Notably, TM would also gain access to P1's existing customer base of more than half a million customers. P1 also has valuable infrastructure that will be of use – it owns over 2,000 base stations that have a coverage breadth of half the Malaysian population. Industry experts say it would take a few years for TM to build up such capacity or infrastructure.

Another advantage of having P1, is that TM would have a faster time to market for their wireless broadband offering. TM has already displayed its intention to venture into this segment of the market. The strategy makes sense, considering that the telco giant should see a slowing down of its fixed broadband business.

TM's main thrust for the last few years has been the rollout of the high speed broadband or HSBB network. So far, TM has about 650,000 UniFi subscribers and has earned the bulk of its income from fixed broadband business.

However, PublicInvest Research noted that TM's UniFi subscription growth has slowed substantially in the recent two quarters. In addition, it says TM's management remained tight-lipped on the high speed broadband 2 (HSBB 2) project except saying that TM is still in discussion with the government but expects the negotiation to end soon.

HSBB 2 is the second phase of its fixed broadband business but details of this project are yet to be revealed. The first phase of HSBB was a public private partnership between the government and TM. It isn't clear if TM will be involved in HSBB2 in a similar way, although analysts expect the same structure to be struck between the government and TM.

MIDF Research says TM stands to benefit from the government-driven HSBB2 project because TM is already the major provider of HSBB. The research house says that any upcoming newsflow on HSBB phase 2 is expected to benefit TM further.

AmResearch notes that the initial year of HSBB2 will see a capex increase and that TM's guidance has not factored in HSBB 2 project yet.

AmResearch also says that given that initial costs will kick in before any incremental revenue is generated, TM's earnings could see downward pressure initially, before turning around strongly in the following year as economies of scale kicks in. The research houses also points out that "TM is refreshing technology for its rural services from the current CDMA technology to LTE. The group attains the 850MHz spectrum band to offer these services, which gives it an advantage of lower roll-out cost given the better propagation qualities of lower spectrum bands."

Adds AmResearch: "At this juncture, there is no clarity on whether TM is going to offer LTE in a big way, such as turning into a full-fledged mobile service provider. Management indicated that there is no regulatory constraint in how it utilises its 850MHz spectrum band."

So it wasn't surprising when last May, TM issued a request for proposal for LTE deployment. According to its briefing documents, TM had said it was seeking network providers to build an "end-to-end network and IT solution with some integration to existing TM infrastructure for the deployment of LTE".

The document also revealed the timeline for the deployment of the 4G services.

The first commercial service is expected to be rolled out by Feb 12, 2014, with the end of rollout slated for Oct 15, 2014. TM's plans then were to use its 800MHz spectrum as its LTE frequency band.

In addition, TM had stated it intended to have 100,000 users on its 4G network by 2014 and more than one million by 2017. It isn't clear how an M&A deal with P1 would change TM's strategic plans for penetrating the wireless broadband market now. But an analyst does not think that TM's move into wireless broadband with P1 would become its key revenue growth driver.

"It is still considered a small business for now, compared with TM's HSBB. Furthermore, TM would need to pump in capex into expanding the network," he said.

Interestingly, TM's share price has risen by some 10.6% since late Jan, closing at RM5.84 on Friday. At that price, TM offers investors a dividend yield of 4.47%, based on Bloomberg data.

Notably, the telecom giant announced hitting the RM10bil mark in revenue for the financial year ended Dec 31, 2013. It posted RM10.63bil in revenue and achieved RM1.36bil in normalised net profit for the period. TM and 15 global telcos recently inked an agreement to build a 20,000km undersea cable Internet link to transmitting 4,800 high-definition movies every second. Prior to that, TM sealed an agreement with Etisalat for fixed line and wireless services in the Middle East. The collaboration will enable TM to leverage on Etisalat's SmartHub facility at Fujairah Cable Landing Station to deliver its content, Internetwork Packet Exchange, Internet Exchange and high speed data services for its customers in the region.

PublicInvest Research says while TM is expected to benefit from continued strong demad for data, it remained concerned on increasing competition and potential substitution for both fixed-line voice and data from faster and higher-quality mobile Internet services from 4G-LTE roll-out.

When asked about its potential M&A with P1 and its mobile wireless broadband strategies, TM says it "does not comment on matters of speculation."

"Any such discussions with any party are part and parcel of our ordinary course of business. The company will make the necessary announcements if and when an agreement materialises from any such discussion," it adds.

TM had in the past said it was not ruling out the possibility of collaborating with industry players to offer mobile broadband.

Global forex market

Posted: 21 Mar 2014 09:00 AM PDT

AS widely expected, the US Federal Open Market Committee (FOMC) decided to taper the size of its monthly asset purchases by another US$10bil. The committee announced that it will now purchase US$55bil in assets each month – US$25bil in mortgage-backed securities (down from US$30bil) and US$30bil in Treasury debt (down from US$35bil) beginning in April.

The committee revamped its forward guidance on interest rates, moving towards more qualitative than quantitative language with the new guidance paragraph dropping the 6.5% unemployment rate threshold. But the FOMC made it clear that the policy itself has not changed. Most on the committee do not expect to begin hiking rates from the current 0% to 0.25% target range until 2015 or even 2016.

News of the third tapering and traders' interpretation of a more timely return to a rate hike regime for the Fed translated into the US dollar index's biggest single-day rally in six months and the technical moves were more significant where the monetary policy differences were starkest among the majors.

The Euro levitated by the European Central Bank's balance sheet reduction and widening interest rates differential – reversed from a multi-year high that was locked at a high of 1.3967 at the early part of the month to a low of 1.3818 at time of writing as market participants turned cautious entering into any strong positions in response to Janet Yellen's statements.

The Japanese Yen also ended the week on the depreciation bias from 101.63 on Monday to latest 102.30 in response to drop in Nikkei 225 and to Kuroda's commentary whereby he said much of the yen's excesses were reduced last year and that gave rise to the growing reticent to boost qualitative easing in Japan sooner than expected.

With the third tapering in place, we saw some loudest protest coming out again from emerging market currencies. In response, the MSCI Emerging Market ETF dropped 2% on heavy volume with Indonesian rupiah falling most, 1.16% against the US dollar, followed by Philippines Peso 0.89% and South Korean won 0.82%.

The feel-good of Jokowi effect on Indonesian markets turned out to be short-lived event and the equity markets fell 3.1%. Meanwhile, Philippines peso fell as the overseas remittances grew 5.9% in January – slowest gains since September and rising inflationary pressures. South Korean won eased as rise in South Korean bond yields was limited compared to US rates and as foreigners sold on KOSPI amid weak housing markets and subdued wage growth.

Malaysian Ringgit down 0.56% against the US dollar for the review period from a low of 3.2783 on Monday to latest 3.2969, attempting to test resistance of 3.3012 of the 50-day moving average. The 1-month non-deliverable forward rallied past 3.3000 along with higher Chinese yuan fixing that rose from 6.1321 to latest 6.1460, which was a relatively sharp increase in the aftermath of widening trading band of Chinese currency last week.

UST market 

US Treasuries sold off across the curve after Crimea's vote to join Russia passed without major incident. Following the outcome of the FOMC meeting, the curve became steep in the belly and long end of the curve. At the time of writing, the 2, 5 and 10-year yields were 8-17 basis points (bps) higher to settle at 0.42%, 1.70% and 2.77%, respectively.

M'sian bond market

Local govvies saw heavy trading after the announcement of the reopening 10-year Government Investment Issues. The amount of RM2.5bil was smaller than market expectation and this sparked strong buying momentum especially on the 10-year Malaysian Government Securities (MGS) which garnered RM1.9bil worth of trades during the week. However, the buying momentum was short-lived following the FOMC's more hawkish outlook leading to the strengthening of the US dollar.

As of Thursday's close, MGS yields on 3, 5, 7, 10, 15, 20 and 30-year MGS stood at a respective 3.38%, 3.56%, 3.91%, 4.08%, 4.47%, 4.59% and 4.87%. The week saw RM12.1bil worth of trades with a daily average trading volume of RM3bil compared to last week's daily average volume of RM1.7bil.

Moving to the local private debt securities market, buying interest was seen in the belly to long-end of GG bonds. Total trading volume was at RM1.8bil for the week, averaging at RM519mil daily as compared to last week's average of RM458mil. Approximately 67% of the trading volume was contributed by the GG/AAA segment and 33% by the AA segment.

In the GG/AAA segment, demand was seen for Khazanah bonds maturing 2018-2024 which saw yields eased 3-8 bps with a collective trading volume of RM105mil. Long-end DanaInfra bonds maturing 2028-2033 also saw some buying interest with RM160mil worth of trades reported done, yields came down 3 bps. Other notable trade includes GovCo '02/18 garnered RM360mil worth of trades to close at 3.94%.

Ringgit IRS market

Ringgit interest rate swap (IRS) rates ended the week 1-3 bps higher following higher inflation expectation by the local central bank and the more hawkish FOMC statement. KLIBOR is also expected to be fixed higher over time. In the AA-segment, secondary trades were spread out across industries in small volume. BGSM bonds maturing 2017-2023 traded within previous range with collective trading volume of RM95mil.

For enquiries, contact: fx-research@ambankgroup.com or bond-research@ambankgroup.com

Market set to grow as investors look for alternative products

Posted: 21 Mar 2014 09:00 AM PDT

THE exchange traded fund (ETF) scene in Malaysia has been relatively quiet while other countries in the region have grown far above and beyond.

But as investors look for more alternative products to invest in amid the rebound in the global economy, the local ETF market could start to gain more traction in the coming years.

ETFs are investment funds traded on the stock exchange. Only yesterday, the total number of ETFs on Bursa Malaysia had been bumped up to six with the listing of MyETF MSCI Malaysia Islamic Dividend (MyETF-MMID) by i-VCAP Management Sdn Bhd.

MyETF-MMID made its debut at RM1.015, a premium to its net asset value of RM1.0033 and the initial issue price of RM1 per unit. It closed at RM1 at 5pm yesterday with 451,000 total units traded.

The open-ended fund with an approved fund size of 500 million units, tracks the MSCI Malaysia IMI Islamic High Dividend Yield 10/40 Index, which comprises Malaysia's syariah-compliant dividend yielding stocks listed on Bursa.

Prior to that, the last time there was an ETF listing on Bursa was four years ago when CIMB Bank Bhd launched CIMB FTSE Asean 40 Malaysia, and CIMB FTSE China 25.

Apart from the two ETFs launched by CIMB, the other ETFs on Bursa are ABF Malaysia Bond Index Fund, FTSE Bursa Malaysia KLCI and i-VCAP's flagship fund, MyETF-DJIM25.

Comparatively, Singapore has 96 ETFs on its exchange and Thailand has 16 ETFs. Meanwhile, the Philippine Stock Exchange had its first ETF listing in December last year.

The global ETF market is currently valued at some US$2.4 trillion and continues to grow. Malaysia's contribution currently stands at a mere RM1bil, hence there is huge room for growth, says i-VCAP chief executive officer Mahdzir Othman.

"Investor education has to be continuously undertaken by the manager like us. The level of awareness is not there yet, and although it is improving it can do better. Given that ETFs have grown extensively globally, we don't want to be left behind," he says.

iVCAP is an investment management services firm that strictly deals with shariah-compliant assets. Set up in 2007, the unit of government-mandated fund Valuecap Sdn Bhd, i-VCAP also provides services for wholesale funds and private mandates.

He opines that the local ETF market will grow gradually. Although still in a nascent stage, he says investor interest in the product is increasing. "The question now is to translate the awareness into trading of these ETFs. We need to see a bit more liquidity in the market for ETFs to get more attention and interest coming from investors," he says.

Mahdzir told StarBizWeek that the company aims to launch more ETFs in the near future. This could be ETFs that are geographical-based, either regional or country specific, as well as ETFs with sector-specific stocks as its underlying asset.

"We feel for the market to move further, we need more depth and more variety for investors," he says. For every new ETF to be rolled out, i-VCAP is looking at a fund size of between RM20mil and RM50mil.

"When the awareness of the products start to kick in, we will probably launch ETFs to the tune of RM100mil in size," he adds.

Although many liken ETFs to unit trust funds, the striking difference among the two is that the former is listed and traded intraday on a stock exchange, much like stocks, while traditional unit trust funds are not listed.

"It behaves like a unit trust but it can be traded like a stock," Mahdzir says.

The main aim of ETFs is to track the performance of an index, as well as provide investors with access to a variety of markets and asset classes.

The advantage of investing in ETFs is that it is tax efficient, as well as liquid and transparent, among others.

Because ETFs are passively managed as it has a pre-determined strategy in tracking an index, it enables the product to have low management fees compared to traditional unit trust funds which are actively managed.

Bursa chief executive officer Datuk Tajuddin Atan adds: "The recently launched MyETF-MMID for example charges a management fee of only 0.4% per annum."

To promote the ETF industry in Malaysia, the local bourse is encouraging potential ETF issuers as well as raising awareness among the investment community.

"The exchange is in regular dialogues with potential ETF issuers, both local and foreign, to have more ETFs listed on the exchange," Tajuddin says in an e-mail reply.

This is with the aim to encourage more issuers to come on board, and to create an environment ripe for growth of the ETF market.

Bursa also conducts market engagements with dealer representatives and remisiers to provide more in-depth knowledge on the various products it offers.

It has held workshops in Kuala Lumpur and Kuching, which saw more than 100 participants in attendance.

The upcoming workshop in Penang already has about 200 participants registered.

He says the demand for different types of investment products depends very much on investors' objectives, the investment time horizon as well as the investors' risk appetite.

"By nature, ETFs are a mid to long term investment vehicle. If these meet with investors' objectives, then ETFs is an appropriate choice," Tajuddin says.

Meanwhile, Mahdzir says i-VCAP's strength lies in its shareholder, Valuecap, which in turn is owned by Khazanah Nasional Bhd, Kumpulan Wang Persaraan and Permodalan Nasional Bhd. "They don't interfere with our operations but we have a strong shareholder backing," he says.

i-VCAP's flagship fund, myETF-DJIM25 which is the first shariah ETF in Asia and the largest of its kind in the world to date, has a net asset value of RM304.2mil.

Mahdzir is looking at having a growth of some 20% to 30% for the fund.

He also expects to see i-VCAP's assets under management growing to RM1bil by the end of this year, from the current RM576.7mil.

Kredit: www.thestar.com.my

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