ON a relative basis, RHB research (RHB) still prefers fixed/integrated players (over mobile) given the more discernible structural catalysts. 

“The tight competition among multinational organisations (MNO) should continue to suppress data yields with tactical promotions to sustain wallet share,” said RHB in the recent Malaysia Sector Update Report.

While the announcement of the 5G spectrum recipient should remove the long sector impasse, RHB thinks upside risks may still be capped by uncertainties as to the overall impact on sector earnings, dividends and 5G cost to serve. Keep NEUTRAL. 

MNOs continue to pursue tactical campaigns to reaffirm their value propositions. RHB sees continuing pressure on mobile data yields (unlimited offers still dominate campaign taglines) with pre-to-post migration activities and up-selling of fibre broadband (FBB) packages providing ARPU support. 

5G adoption momentum has picked up, thanks to attractive device campaigns. The lack of retail use cases and high data quotas suggest monetisation will take time.

Valuation of digital infrastructure assets has gotten a boost from the start of the interest rate downcycle. 

“This could spur further corporate actions and M&As in 2025, in our view, with infrastructure-backed telcos in the limelight. We view TM as a key beneficiary of the data centre (DC) and artificial intelligence (AI) boom given its stranglehold over fibre and digital infrastructure assets in the country,” said RHB.

The expansion of its twin-core DC facilities in Cyberjaya and Iskandar Puteri would allow it to meet stronger co-location demands with DC earnings before interest, tax, depreciation and amortisation potentially doubling in the financial year 2027 forecast (FY27F). 

TM’s joint venture with Singtel to develop a 64MW AI-DC in Johor could potentially contribute MYR80-85mil in earnings.

TM is well placed to secure more DC connectivity jobs with the commissioning of its new cable landing station in Morib expected to be ready for service in 2025. 

While the revelation of the new 5G spectrum recipient should end the long 5G impasse in the sector, RHB sees uncertainties and greater clarity sought on the underlying impact on earnings from wholesale cost, cost to serve (with 5G traffic eventually split two ways between Digital Nasional Bhd and Entity B) and capital expenditure limiting upside risks for MNOs. 

“We see the outcomes as contingent on network collaborations to be formed with non-5G spectrum holders. The dual 5G network framework pivots the sector from a single wholesale network (SWN) model where 5G wholesale costs incurred by access seekers have thus far been incremental,” said RHB.

Additional 5G spending from the second 5G network provider and site densification works should nonetheless benefit players involved in infrastructure deployment such as TM and OCK Group.

Key downside risks for the sector are competition, weaker-than-expected earnings and regulatory setbacks. – Oct 23, 2024

https://focusmalaysia.my/rhb-favours-integrated-players-amids-telco-sector-challenges/