Usage of their fibre network is set to expand
PETALING JAYA: Telekom Malaysia Bhd
(TM) and TIME Dotcom Bhd are seen as beneficiaries of a 5G environment as usage of their fibre networks will grow, according to a research house.
Fibre’s role as backhaul to transfer data has become even more critical and a mandatory pre-requisite in broadband/5G infrastructure build-up.
“Demand will spike not only in terms of capacity, but also coverage to compensate for 5G spectra’s (especially mmW) shortcoming in propagation,” said Hong Leong Investment Bank (HLIB) Research.
The research house expected the surge in wholesale bandwidth demand to boost margins even under the mandatory standard access pricing regime.
“As new fibre rollouts are commercially negotiated and the price is not regulated, fixed telecommunication service providers can command more lucrative returns,” HLIB Research said. It maintained its “neutral’’ stand on the sector.
The research house reiterated its emphasis on fixed over mobile service providers as they are the prime beneficiaries of the broadband/5G infrastructure deployment across Malaysia. It has a “buy” call on TM and Time with a target price (TP) of RM7.23 and RM5.37 a share respectively.
HLIB Research, however, noted the sector has its own issues – from the 5G regulatory uncertainties and prosperity tax impact.
In view of the interest rate hike situation, the research house had lowered Maxis Bhd’s discounted cash flow derived TP to RM3.19 from RM3.96 a share earlier.
It also lowered Axiata Group Bhd’s sum-of-parts-derived TP from RM4.49 to RM2.81 a share.
HLIB Research added in the current hawkish environment, the telecommunication companies’ (telcos) dividend yields, which average about 4%, are not attractive relative to the risk-free rate to spur domestic and foreign buying interests.
Foreign shareholdings have also been stagnant with more apparent sell-off observed in TM.
According to HLIB Research, the US dollar is expected to be firm in 2022 averaging RM4.30 per against the ringgit compared with RM4.14 in 2021.
This may lead to higher international direct dialing traffic costs and foreign debt financing.
Time’s global bandwidth sale and leasing proceeds will be higher as the majority are dominated in US dollars.
HLIB Research said the 5G infrastructure in the country would be running on the most sought after 700MHz as the anchor band to take advantage of its superior propagation feature and C-band (3.5GHz).
Ericsson was awarded the 10-year contract worth RM11bil to deploy about 10,000 sites along with a target to achieve 80% population coverage by 2024.
The research house is positive on the decision by the telcos to take up stakes in Digital Nasional Bhd despite the pending details of the deal as well as the finalisation of the reference access offer.
According to HLIB Research, it is business as usual for the industry participants and the Big-three telcos (Celcom Axiata, Digi.Com Bhd and Maxis) remained disciplined and cost-focused.
If the Celcom-Digi amalgamation materialised, HLIB Research expected a healthier market rivalry with lower price undercutting to gain market share.
Pre-to-postpaid migration continues to be motivated by voice-to-date substitution, it added.
