• Prefer fixed/integrated and telco-infrastructure-centric players (over mobile) given their structural growth catalysts and more resilient earnings. The evolving 5G developments could present some trading opportunities. Axiata remains a tactical exposure with balance sheet repair as the key thesis. We also like OCK Group as a mid-cap proxy to 5G network expansion and exposure to digitalisation projects. Top Picks: Axiata, OCK. Still NEUTRAL.

• Structural drivers for fixed and integrated players; value illumination on infrastructure assets. We see structural drivers (cloud services, enterprise digitalisation and managed services) fuelling the growth of fixed line and telco infrastructure-centric players. Infrastructure assets continued to be in the limelight on sustained news flow (ie data centres). This bodes well to illuminate the value of infrastructure assets within a fixed/integrated player. Telco infrastructure-centric players that are part of the value chain should also benefit from the recurring theme, in our view. We do not rule out more partnerships and/or strategic infrastructure M&As to unlock values.

• The focus on affordable connectivity. We note that competition within the prepaid segment has picked up recently (Figures 1 and 2). This underscores the commitment by mobile network operators (MNOs) to ensure affordable connectivity on the back of the inflationary environment and the focus on wallet share. We expect industry MSR growth to remain subdued in 2H24 with monetisation of 5G impeded by large 4G data quotas and the dearth of retail use cases. Overall industry MSR is projected to grow by 1-3% in 2024 (2023: +1.3%), driven by prepaid-to-postpaid conversion and fixed-mobile bundled services.

• Evolving 5G developments. DNB named new board members yesterday, comprising of nominees from the five MNOs that had earlier inked conditional share subscription agreements to acquire a combined 70% in the entity. We see this as part of the ongoing process (recapitalisation of DNB), with one of the long stop dates for the exercise being 20 business days following a board meeting to be convened, unless agreed for otherwise. The equity injection is a pre-requisite for a second 5G network. The regulator would also need to revoke the Ministerial Direction issued in 2021 which grants 5G spectrum exclusivity to DNB. In our view, Maxis remains a frontrunner for the second consortium, with the telco affirming its readiness to build a second network. We believe it could work alongside a consortium partner with significant backhaul connectivity to defray the cost of rollout.

• 5G wholesale charges to pick up. While mobile operators have incurred minimal 5G wholesale charges in 2023, this is set to increase in 2024 from higher 5G traffic. The overall quantum should nonetheless still be below the mandated charges under the initial wholesale agreements inked (MYR288- 360m pa for base capacity of 800-1200Gbps).

• Risks: Competition, weaker-than-expected earnings, regulatory setbacks.

Source: RHB Securities Research - 26 Apr 2024