PETALING JAYA: The recently announced digital infrastructure plan (Jendela) is unlikely to materially raise telco companies’ near-term capex, allowing them to defer their 5G capex risk.
Maybank IB Research said the infrastructure plan initially prioritises a further strengthening of 4G networks for mobile players, with 5G deployment realistically only beginning in 2022 at the earliest.
“Meanwhile, 3G networks are slated to be phased out by end-2021, meaning there is a possibility of impairment or accelerated depreciation of 3G equipment by the telcos.
“None of the telcos have yet to disclose the residual value of their 3G equipment.
“We note that Axiata and Maxis have historically treated accelerated depreciation as exceptional items for financial reporting, ” Maybank IB said in a research note.
On Aug 29, the Prime Minister announced the digital infrastructure plan to provide 96.9% of populated areas with a 4G mobile broadband network.
This will see the end of the 3G network in phases until 2021 and place 4G as the platform for transition to 5G under the 12th Malaysia Plan.
The speed of the mobile broadband network will be upped from 25Mbps to 35Mbps, and 7.5 million premises will get fixed broadband access with gigabit speed.
“For fixed-broadband players, a seemingly ambitious target of raising the number of premises from 4.95 million now to 7.5 million by end-2022 has been set.
“With home fibre connections only totalling over three million currently, we believe these figures include premises that are being served by fixed-wireless access.
“Gigabit speeds are thus achievable when 5G is eventually deployed, ” it said.
Nevertheless, fibre deployment should continue unabated both for mobile back-haul and retail broadband and Maybank IB expects Tenaga Nasional Bhd to emerge as a credible player in the space in the coming years.
Sabah and Sarawak will be the main beneficiaries from Jendela as there will be a lot of digital infrastructure upgrading.
With the risk-reward profiles for telcos remaining balanced at present, Maybank IB has maintained its “hold” rating on the telco stocks under its coverage.
“On a relative basis, with fixed-line telcos having outperformed mobile telcos in the past quarter, we shift our preference back to Digi with a target price at RM4.40 for its sector-leading dividend yield.“With the exception of Axiata, the second quarter turned out to be a relatively manageable quarter for the telcos, with fixed-line telcos delivering quarter-on-quarter net profit growth despite the movement control order, ” it said.
However, the research house noted that there were several risk factors for its earnings estimates, price targets and ratings, including competitive developments such as price wars, which could adversely affect pricing and profitability.
Additionally, regulatory developments on taxation, product pricing or spectrum could also pose a risk to telcos’ earnings.
Did you find this article insightful?