ON Wednesday, one stock on an otherwise lacklustre local bourse, went into overdrive. The company was OPCOM HOLDINGS BHD, which manufactures fibre-optic cables and cable-related products.
Clearly, the wild speculation hitting the stock was linked to the National Fiberisation and Connectivity Plan (NFCP) announced on the same day.
Investors chased the stock up from the 45-sen level of Aug 27 all the way to an intra-day high of 74.5 sen the following day. The stock is still hovering strong at the 60-sen level.
Interestingly, this is not the first time Opcom has seen aggressive sudden buying. It happened after the 14th general election, when its shares shot up by almost 50% to 90.5 sen as the stock market resumed trading on May 14 last year.
That was because Prime Minister Tun Dr Mahathir Mohamad’s son, Datuk Seri Mukhriz Mahathir, was one of the main shareholders of Opcom while his brother Tan Sri Mokhzani Mahathir is chairman and executive director.
Mokhzani has since resigned in June, citing personal reasons.
Mukhriz continues to be a major shareholder with a 21.64% stake in the company.
Opcom is one of the key suppliers of fibre-optic cables and telco-related services for TELEKOM MALAYSIA BHD (TM).
So naturally, this would put the stock on the radar following the announcement of the NFCP.
Another stock that is being linked to the NFCP is OCK Group Bhd.
OCK is a telco network solutions provider that builds and leases telecommunications towers. It owns and manages over 4,000 telco sites in Malaysia. This was a darling stock back in 2017 when it touched a high of 98 sen.
For 2018, the stock was in the doldrums and descended to a low of 44 sen. The stock has now seen some life and recently scaled closer to the 60-sen level on news of the NFCP.
Malacca Securities believes that OCK will be able to leverage on the NFCP, given its expertise in the segment.
However, due to the actual guidelines on the NFCP not being out yet, not all telco analysts believe it is positive for the sector.
That said, it is true that the NFCP acts as a pump primer and one of the largest contracts announced by the Pakatan Harapan government.
A country that is connected will result in more economic activity, opening up of new markets and business models, as well as creating jobs.
“This is definitely good for the country. However, we do not know how it will benefit the large listed telco players in the country, ” says a telco analyst.
“Sure, RM21.6bil is a big number. For the telco players, though, the concern is will they be required to do national service, as they will have to help fund the project?” adds the analyst.
Telco providers TM and Digi.com Bhd responded to queries by StarBizWeek.
“As a responsible nation-builder, we will continue to serve as a strategic enabler of the NFCP, backed by our solid infrastructure.
“We are currently in active discussion with the government to address issues related to the copper network as part of the NFCP discussions. In terms of the roll-out implementation, as the matter is still ongoing, we are unable to disclose more details at this juncture, ” says TM.
A Digi spokesperson says it fully supports the ambitions set out by the NFCP, and will continue to play a key role in providing affordable, widespread access to high-quality connectivity and digital solutions to enable more consumers and businesses to participate in the digital economy.
“We look forward to working closely with the government to facilitate further development of infrastructure in the country towards spurring economic uplifts for Malaysia, and achieving its ambitions of 98% broadband coverage in populated areas by 2023 with a minimum broadband speed of 30Mbps nationwide, ” says the Digi spokesperson.
As it is, between 50% and 60% of the funding for the NFCP will come from the Universal Service Provision (USP) fund, which is said to contain around RM8bil.
The remaining money will be sourced from various parties, predominantly the telco players.
Telco providers contribute 6% of their weighted net revenue towards the USP fund every year. This works out to RM1.5bil to RM2bil a year.
“The NFCP may affect the balance sheet of the telcos. Apart from contributing to the USP fund, they will now have to pay for the balance 40% to 50% of the funds not funded by the USP, ” says the telco analyst.
In the case of TM, AmResearch analyst Alex Goh says that given TM’s role as the national broadband provider, the group will likely bear up to half of the NFCP cost, which translates to RM2.2bil over the next five years.
“Besides TM’s own capex requirements, the NFCP rollout alone translates to 19% of the financial year 2020 (FY20) revenue. This is already above management’s FY19 capex target of 18% and 8% in the first-half of 2019, ” according to Goh.
The thrust of the NFCP towards connecting the rural population could mean that revenue accretion from these investments for TM will be minimal.
This is because the revenue accretion from rolling out the broadband or cellular network in the rural areas is not a lucrative proposition. The “revenue per acre” is significantly lower, and could even be unprofitable in rural areas.
Finally, a wildcard beneficiary of the NFCP could be utility giant Tenaga Nasional Bhd (TNB), which has been roped in as an alternative fixed fibre network provider alongside TM.
TNB has the longest track of fibre in the country, and this could be used to speed up broadband connectivity.
In relation to this, TNB ran a pilot project in Jasin, Malacca last September, to test the viability of providing broadband services through its fibre optic network.
This pilot project was meant to allow TNB to assess the commercial viability for it to embark on possible larger-scale NFCP participation nationwide.
The pilot project was a success, and in May, TNB’s newly appointed president and CEO Amir Hamzah Azizan said the energy group is exploring commercially viable penetration for its fiberisation and connectivity business nationwide.
The telco analyst feels that TNB’s participation on a nationwide scale is still premature. This is also evident from its share price that has barely budged.
“Yes, it has completed the pilot project in Jasin, but wiring up the entire nation is really a different story altogether, ” he says.
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