THE potentially sizable earnings downside risk for the Malaysian telco sector will persist, should the Government proceed with its 5G single wholesale network (SWN) roll-out plan via Digital Nasional Bhd (DNB).
Reiterating its “underweight” rating, CGS-CIMB Research said such uncertainty cannot be discounted given this scenario has unlikely to be fully priced into the mobile network operators’ (MNOs) share prices.
“A decision on the latter may be announced by the Government in March 22,” projected analyst Foong Choong Chen in a telco sector update. “We still prefer the fixed segment due to better revenue growth prospects, more benign competition and less regulatory risk.”
Ironically, this comes as local telcos look set to meet the National Digital Network Plan (JENDELA) end-2021 targets with 4Q 2021 industry fibre roll-out target by 181% (led by Telekom Malaysia Bhd [TM]).
According to CGS-CIMB Research, TM remains as the top Malaysian telco pick while it has a “reduce” rating on Maxis Bhd. “Key upside risks are lower 5G wholesale fees, cancellation of SWN or MNOs offered equity stakes in DNB,” the research house pointed out.
In a recent conference call, the Malaysian Communications and Multimedia Commission (MCMC) said 421,000 new fibre premises were passed in 4Q 2021 (1Q/2Q/3Q21: 293,000/342,000/378,000), thus encouragingly exceeding the target by 181%.
This brought incremental fibre premises passed to 1.4 million in 2021, mainly driven by TM (8% above target) which continued its accelerated network roll-out to capture the robust demand for fibre broadband amid the intermittent movement control orders (MCOs).
For mobile, upgrades of existing and roll-out of new 4G sites were 34% and 127% ahead of targets in 4Q 2021 respectively.
Notably, average 4G download speeds continued to climb 19% quarter-on-quarter (qoq) to 37.3Mbps, surpassing the Phase 1 target of 35Mbps a year ahead of target.
With regard to MNOs missing their end-4Q 2021 targeted shutdown of 3G sites/3G sub migration by 20%/21%, MCMC attributed the matter to the flood/monsoon season and aims to complete the 3G shutdown by end-March 2022.
Moving forward, CGS-CIMB Research emphasised that policy certainty is key to incentivising infrastructure investments for the telco sector.
The next three-year cycle for the Mandatory Standard on Access Pricing (MSAP) will be from 2022-2024. MCMC has already engaged a third party to reassess the market and will launch a public inquiry in due course.
“The MSAP review will be guided by industry players’ needs/requests to address any issues. However, in principle, MCMC stressed the importance of maintaining policy certainty as this provides the incentives/business case for telcos to make infrastructure investments,” noted CGS-CIMB Research.
“We view this positively, as it suggests that the MCMC is unlikely to impose any drastic measures in the MSAP review.”
Meanwhile, MCMC has reassured that it will likely not mandate telcos to incur a specified amount of capex to improve their networks but rather continue its current approach of monitoring/regulating their quality of service (QoS), added the research house. – Feb 28, 2022
