PETALING JAYA: The telecommunications sector seems to be on the radar of most research houses but for now, details are sketchy for any sector upgrades until there is clarity on the way the 5G infrastructure will be rolled out.
RHB Research said in a note that based on information disclosed so far, it appears that the industry/infrastructure providers would part-finance the network rollout via tenders to be called by Digital Nasional Bhd (DNB), the 5G special-purpose vehicle, soon.
However, it remains unclear as to the quantum that would come directly from the government and how mobile operators would play a role in deploying the network.
It said the key risk with DNB lies in its execution, given the tight timeline for the deployment of the 5G network with commercialisation of services slated by year-end.
The research house maintains its “neutral’’ stand on the sector. It also cited competition, weaker than-expected earnings and negative regulatory developments as key risks for the sector.
It has lowered its core earnings forecasts on Digi.com Bhd, Maxis Bhd and Telekom Malaysia Bhd (TM). It lifted projections for Axiata Group Bhd and TIME Dotcom Bhd (TDC) and kept its estimates on OCK Group Bhd.
Its target price for Axiata of RM3.90 a share, Digi (RM4.15) and Maxis (RM4.90) have been cut while it raised that for TM (RM7.30) and TDC (RM13.80).
There are talks that some conversations are happening between Digi and Celcom Axiata Bhd for some collaboration or even merger in a single entity environment for 5G, though talks are said to be preliminary at this stage.
AmInvestment Research said as celcos will have access to the same 5G infrastructure, operators are considering consolidation for economies of scale and collaboration between different geographical locations amid an intensely competitive landscape to deliver on improved marketing, customer support and value-added services to the end users.
It added that if negotiations (between Digi and Celcom’s parents – Telenor and Axiata respectively) are successful, the merged entity would emerge as the largest cellular operator in Malaysia, Nepal, Cambodia, Myanmar, Sri Lanka and Bangladesh.
Separately, RHB Research said competition stays keen domestically as telcos jostle for wallet share on the back of the weaker consumer and economic sentiment. This should drive new customer acquisitions.
It said the enterprise segment was poised for further recovery. The pick-up in enterprise spending from earlier project deferments is positive for TM and TDC via the accelerated demand for cloud and connectivity services.
On the recent financial results by the telcos, it said Maxis and Celcom gained at Digi’s expense.
However, for 2020, industry mobile service revenue fell 6.5% due the decline in roaming revenue (border closures), pre-to-post migration, lower mobile termination rates and the impact from the industry’s free 1GB data quota, which hampered monetisation opportunities.
However, fixed-line operators continue to outperform due to stronger fibre broadband demand and plan upgrades from the extended work/study-from-home arrangements and this will continue into this year, RHB Research said.