KUALA LUMPUR: Celcom Axiata Bhd and Digi.com Bhd merger is seen as a positive move as the consolidation leads to healthier market rivalry, improved operational leverage, effective capital expenditure (capex) spending and more procurement bargaining power.
Hong Leong Investment Bank Bhd (HLIB) in a note today said the MergeCo will be the largest telco with revenue and sub-market share of 34 per cent and more than 40 per cent, respectively.
Further, this will be considered as a leading telco in Malaysia in terms of value, with pro-forma revenue of about RM12.4 billion, pre-synergy gross earnings of RM5.7 billion and an estimated 19 million subscribers.
However, both companies believe this is an addressable issue by taking into consideration of over the top (OTT) market share.
"Although the merged company (MergeCo) will have the largest airwave holdings, we do not think this will attract any concern due to its large subscriber base," it said.
HLIB expects Digi to be the direct beneficiary from any success from the MergeCo, while Axiata Group Bhd may not be able to monetise immediately and at the same time, safeguarding national interest in the MergeCo.
"We also do not discount the possibility that the MergeCo will consolidate its towers by maximising the usage of Digi towers, thus reducing its tower rental from edotco," it said.
Yesterday, Axiata and Norway's Telenor ASA are in merger talks again, but this time it will be at a reduced scale involving units Celcom and Digi.
Axiata and Telenor will each own 33.1 per cent of Celcom Digi.
With national interests firmly in place, Axiata and several Malaysian institutional funds will collectively control more than 51 per cent stake in MergeCo.
HLIB has maintained its 'Neutral' call on the telecommunication sector and reiterated its emphasis on fixed over mobile as they are the prime beneficiaries in broadband or 5G infrastructure deployment.
Its top picks are Telekom Malaysia Bhd and Time dotCom Bhd with 'Hold' calls on both Axiata and Digi.