EXCEPT being bullish about prospects for Telekom Malaysia Bhd (TM), stock market analysts are generally neutral on the impact of the MyDigital (Digital Economy Blueprint) initiative towards the country’s telecommunications sector.
The Government’s target for 80% of public data to be migrated to the hybrid cloud by end-2022 under the blueprint is seen as a longer-term positive for TM, according to CGS-CIMB Research.
“(This) should drive demand for its existing data centres (and potentially trigger the development of new ones), plus demand for fibre connectivity to and from the data centres,” opined analysts Foong Choong Chen and Sherman Lam Hsien Jin in a telco sector update.
“At this stage, we are unsure of the value of the potential business for TM, or if the three other cloud service providers (CSPs as in Microsoft, Google and Amazon) are obliged to partner with TM.”
Moreover, Foong and Lam reckoned that TM should also stand to benefit from the leasing of its fibre transmission network (backhaul and backbone) to the special purpose vehicle (SPV) for 5G roll-outs.
However, on an overall basis, CGS-CIMB Research believes that the Government’s MyDigital initiative will largely have a neutral impact on mobile operators, with TM likely to become a key beneficiary.
“This reaffirms our preference for fixed-over-mobile, given the former’s multiple growth drivers and relatively more benign competition,” justified CGS-CIMB Research, pointing to mergers and acquisitions (M&As) as the telco sector’s upside risk with keener competition being its downside risk.
PublicInvest Research also maintained its “neutral” call on the telco sector, also identifying TM as a key beneficiary given its network of more than 20 submarine cable systems and 560,000km of broadband fibre network across Malaysia.
While the research house acknowledged that the blueprint is positive for the telco sector as it paves the way for the development and transformation of Malaysia into an advanced digital economy, this comes at a cost.
“Telcos would benefit from the offering of additional services at lower cost of investment,” noted analyst Eltricia Foong. “However, earnings impact may not be visible in the medium term while capex is expected to remain elevated.”
Kenanga Research, too, opined that except for TM, the MyDigital blueprint has neutral impact on the telco sector.
“As one of the few telcos with submarine fibre cable infrastructure, TM will likely contribute to the cable network expansion in our view,” suggested analyst Clement Chua.
“Though any additional capex is not yet known, we believe that its cost-optimisation efforts should help cushion any additional costs from expedited fibre expansion.”
Moreover, with TM’s extensive fibre footprint, the telco is likely to have to lease out its fibre footprint to serve the new network, therefore enabling it to still play an important role in 5G development, added Kenanga Research.
At 10.48am, TM was up 11 sen or 1.7% to RM6.59 with 955,800 shares traded, thus valuing the company at RM24.87 bil. – Feb 22, 2021
