Cautious optimism over 5G rollout

KUALA LUMPUR: Analysts have expressed cautious optimism about the agreements signed by five Malaysian telcos, interpreting them as a collaborative effort to expedite the rollout of the 5G network in Malaysia under a dual wholesale network structure.

To recap, last week, CelcomDigi Bhd, Maxis Bhd, U Mobile Sdn Bhd, Telekom Malaysia Bhd (TM) and YTL Power International Bhd, collectively committed RM233mil each to acquire a 70% stake, or 14% each, in Digital Nasional Bhd (DNB).

The Malaysian government, represented by the Finance Ministry (MoF), will retain the remaining 30% stake and hold a special share in DNB.

The consensus among analysts is that the agreement represents a cooperative resolution propelling the sector forward.

Kenanga Research believes the agreement marks the first step in facilitating the transition to a 5G dual network, leading to the formation of Entity B, from the single wholesale network model.

“We are neutral on this development, given that the final outcome on the mechanics of 5G has not been revealed yet,” the research house noted.

Kenanga Research said that it is neutral on the announcement, pending more details on the final equity stake for each telco in Entity A or B, key financial information on DNB, Entity B’s acquisition price and mode of payment and any revised access rates charged by DNB to each telco.

Following completion of the share subscription agreements and upon DNB having achieved 80% population coverage target, the telcos are required to acquire MoF’s remaining 30% stake in DNB for at least RM190mil.

RHB Research expects the final terms of the shareholder agreement to contain specific provisions for DNB investors to exit – as the case may be – to pursue the second 5G network or Entity B.

According to CGS-CIMB Research, the recent agreements suggest that all parties involved have reached a harmonious consensus to propel the 5G network rollouts in Malaysia under a dual wholesale network structure.

In its assessment, CGS-CIMB Research maintained its assumption that Maxis and CelcomDigi will serve as the primary shareholders, each holding 100% of the two 5G networks and overseeing their respective rollouts.

“Should there be other shareholders in the networks, we will incorporate the minority interest elements to reflect such a situation,” the research outfit noted.

Meanwhile, Kenanga Research believes that the impact on gearing for telcos will be muted.

Based on the current financial structure, the research house’s calculation showed the expenditure of RM420mil will lead to a slight increase of 0.1 times in the gearing ratio for each telco.

“This impact appears marginal, considering the substantial earnings base for the telcos,” it added.

However, following the formation of Entity B, Kenanga Research believes the final outlay may fluctuate as each telco’s shareholding in DNB may be recalibrated.

“On a separate note, we understand that for Entity B shareholders, the prepayment amount offsets against future access payments to DNB.

“Therefore, this implies that the cash outlay for shareholder advances are earnings neutral for Entity B shareholders,” it said.

Both Kenanga Research and CGS-CIMB Research have maintained their “overweight” rating on the telecommunications sector, while RHB Research has reiterated its “neutral” stance on the sector.

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CelcomDigi , Maxis , U Mobile , TM , DNB , 5G , Digital Nasional Bhd


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