PETALING JAYA: Although the Malaysian Communications & Multimedia Commission (MCMC) has raised the statement of issues (SOI) on the proposed Axiata and Digi merger, the risk of the regulator taking up a dissenting view is low, according to RHB Research as the regulator previously maintained an accommodative stance on market consolidations and the merger construct.
RHB Research elaborated that MCMC may issue a notice of no objection if it is satisfied that the merger does not substantially lessen competition in the market nor result in a dominant position, even though there is a likelihood of a dissenting view/decision by the regulator.
The research house outlined that the SOI could potentially delay the timeline for completion of the merger, which was initially set for end Q2’22.
It explained that MCMC’s SOI issuance indicates it is likely to issue an unfavourable decision but reserves its final decision pending the feedback and input from the telcos on points raised.
RHB Research said the two telcos were requested to provide additional comments and detail on the national retail market for mobile and low-speed fixed broadband and data services, the national retail and wholesale market for mobile voice and person-to-person (P2P) messaging services including the related local distribution channel market and network sharing arrangement. The regulator also sought more information on the national wholesale market for mobile broadband services including network sharing arrangements from the two.
The research house opined that the SOI may have triggered renewed concerns over merger execution.
“The development has also caught the market off guard as Axiata and Digi’s management teams had earlier indicated – during their results call and briefings – that the integration process is progressing as planned. Both Celcom and Digi will continue to engage closely with the regulator and are required to respond to their SOI within 30 days,” said the research house in a report today, adding that the SOI raised by the regulator has led to a knee-jerk selldown on Axiata Group and DiGi.com shares.
It noted that the telcos have 30 days to address the preliminary concerns over market competition that could arise from their proposed merger presented by the regulator on April 1, 2022.
“Key risk is an unfavourable decision by the regulator. We see the uncertainty as a near-term overhang on both stocks.”
It has retained a neutral call on the sector, favouring fixed players and their stronger re-rating catalyst. RHB Research’s top picks are Telekom (target price [TP]: RM7.65), Axiata (TP: RM5.03), Time dotCom (RM5.00) and OCK (TP: 56 sen).
