UOB Kay Hian Research: High execution risk from single 5G infra model


FILE PHOTO: Brazil's Communications Minister Fabio Faria arrives at a news conference after the opening ceremony to 5G auction in Brasilia, Brazil, November 4, 2021. REUTERS/Ueslei Marcelino

KUALA LUMPUR: UOB Kay Hian Malaysia Research expects high execution risk from a single 5G infrastructure model in Malaysia based on case studies across a few key developed nations.

The research house said on Thursday a recent publication by DT Economics (commissioned by GSMA), case studies in Mexico, Australia, the UK and South Korea showed a poor track record of successful implementation under a single wholesale network (SWN).

This includes: a) delay in network rollout with unexpected complexity and regulatory hurdles, b) relatively low take-up amid reduced innovation and competition, c) insufficient funding due to unplanned delays, and d) lower-than-expected cost benefit.

View report: https://www.dteconomics.com/post/dt-economics-publishes-an-economic-risk-assessment-of-malaysia-s-5g-plan

“We have previously highlighted that the single infrastructure model for 5G undertaken in Malaysia has a high execution risk. In summary, we expect a delay in the actual implementation of 5G rollout for Malaysia,” it said.

UOBKH Research issued its analysis after the media reported that none of Malaysia's major telcos are agreeing to use the government's 5G network yet due to the lack of transparency and pricing issues.

This is ahead of a government rollout planned for next month, quoting unnamed state agency and industry executives.

That said, network wholesaler Digital Nasional Bhd (DNB) reportedly said that it still hoped to launch 5G services in three urban centres, as talks continue with mobile operators.

DNB had reportedly confirmed that no agreement with carriers has been reached and acknowledged its initial timeline for negotiations had been "too optimistic".

The agency will now seek to have formal long-term agreements early next year and continues talks to deploy 5G services in three central areas, including the capital Kuala Lumpur, next month.

UOBKH said in its report it does not expect significant impact on share price of telcos following the above newsflow.

“In the event the single infra model fails, telcos will need to go back to the drawing board and await a decision on spectrum allocation (beauty contest might be expensive as well) from the regulator MCMC.

“Impact on fixed line operators: Possible disappointment as Telekom Malaysia is expected to gain from new wholesale contracts to be signed with telcos for its fibre assets.

“Maintain market weight on the sector. The sector is trading at seven times FY22F enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) and 25 times FY22F price-to-earnings.

“We deem the current valuation fair in view of sluggish topline and one-off prosperity tax for 2022. Our top picks are TM for its good growth prospects and Axiata for its depressed valuation and it being a proxy for regional reopening plays,” UOBKH said.

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