#Hot Stocks* Axiata,TM, Digi, Maxis up on potential re-rating

KUALA LUMPUR  (Dec  12 ) –  Shares of telecommunication companies (telcos) rose among top gainers on Wednesday morning  as investors  anticipate a re-rating of the industry following the award of high-speed Internet bandwidth to these firms.

Analysts said they are optimistic on the telecommunication industry due to the sector's defensive qualities.

MIDF Amanah Investment Bank analyst Imran Yusof said the research firm believes that most of sector’s potential, including the Long Term Evolution (LTE) technology, has been priced in.

"Hence, our Neutral view (on the sector). Nevertheless, we do not rule out the possibility of an upward re-rating should LTE gains traction faster than expected," Imran wrote in  a note.

At 10.27 am today, Axiata Group Bhd added five sen to RM6.38,  Telekom Malaysia Bhd (TM) rose 12 sen to RM5.80,  DiGi.Com Bhd climbed eight sen to  RM4.98, while Maxis Bhd was up  five sen to  RM6.57.

According to Imran, TM is MIDF's top pick for the sector as the state-owned company owns an extensive fibre infrastructure.

The analyst said TM has huge upside potential, despite competition among high-speed broadband service providers as these companies will have to lease capacity from TM.

"We believe that TM will also benefit from providing fibre backhaul for the LTE networks," Imran said. According to the analyst, MIDF has a target price (TP) of  RM6.75 and a "buy" call for TM.

The research house, however, rates Axiata (TP:RM6.35), Maxis (TP:RM6.80) and DiGi (TP:RM4.80) as “neutral "

But Imran said any weakness in these telcos share prices may offer an opportunity for investors to accumulate these stocks.

The Malaysian Communications and Multimedia Commission (MCMC)  had last week  unveiled a list of companies which had received  the 2.6 GHz bandwidth which will spur the adoption of high-speed broadband by telcos.

The award of the bandwith for 4G or LTE mobile telecommunications network is expected to help these companies roll out their LTE services by first half of 2013.

MIDF's Imran  said the research firm does not anticipate delays in the introduction of the services as telcos have started network modernisation since 2011, hence, would have been well prepared for the eventual award of the bandwidth.

Imran, however, said MIDF  does not anticipate a full roll out next year due to under-utilisation of 3G capacity, especially, in rural areas.

"We believe that the roll out will be in phases and launches could start with Klang Valley,” he said.

Meanwhile RHB Research Institute analyst Lim Tee Yang said the research firm is keeping its “overweight” stance on the sector.

Lim said while valuations are not cheap, RHB anticipates that monetary policy to remain supportive of the country’s economic growth in 2013 against ample liquidity.

"Therefore, investors may continue to seek out telecom stocks offering generous dividend yields.

"For our top pick, we like Axiata for cheaper valuations compared to domestic peers and potential upside in dividends since group capex appears likely to peak this year," Lim said.

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