On the second 5G network, UOBKH Research said it expects U Mobile, which won the bidding process, to work with Maxis Bhd to build the network. — Bloomberg
PETALING JAYA: Clarity and guidance on the terms offered to build the second 5G network will be some of the key events to look out for in the telecommunications sector in the first half of 2025.
UOB Kay Hian Research (UOBKH Research) said two other things to watch out for are price competition given intense competition from CelcomDigi Bhd, plus savings from synergies following the merger of Celcom and Digi.
“The total synergistic savings from operating and capital expenditures are estimated at RM8bil by 2027.
“About 65% of the savings for CelcomDigi will come from network integration, such as the phasing out of duplicated towers. CelcomDigi achieved close to 70% of its overall network integration targets, with more than 10,500 sites modernised as of end-October 2024,” the research house said.
“This allowed CelcomDigi to generate gross synergy savings of RM1bil in the first nine months of 2024 (9M24) versus RM727mil in the first half of 2024 and lifted guidance to RM1.1bil to RM1.2bil for 2024.”
On the second 5G network, UOBKH Research said it expects U Mobile Sdn Bhd, which won the bidding process, to work with Maxis Bhd
to build the network.
According to a statement by U Mobile following the award on Nov 1, it is allowed to collaborate with other mobile network operators (MNOs) to implement the second network.
“Maxis may be U Mobile’s potential partner in an entity to build the second network. This may include many permutations, including an equity stake in a special purpose vehicle that will eventually hold the 5G spectrum to be owned by Maxis and U Mobile.
“Other permutations include the potential merger of U Mobile and Maxis, although we believe this method is more complicated as it requires shareholder approval,”’ the research firm said.
It reckons that CelcomDigi may be tasked to lead another entity via share buyouts from the exiting MNOs and the Finance Ministry’s existing 30% equity stake in Digital Nasional Bhd (DNB), which owns the country’s original 5G network.
“We understand that the shareholder advances of exiting MNOs of approximately RM1.2bil from each MNO will be converted to ‘pre-payment’ for the use of the DNB 5G wholesale network.”
The research house said if CelcomDigi were to take over DNB and assume its debt of about RM4bil, the focus will be to bring about good cost discipline in DNB to ensure Maxis’ network cost remains competitive.
Touching on the sector earnings for 9M24, the research house said it came in broadly within expectations, expanding 4% year-on-year to RM4.66bil.
Telekom Malaysia Bhd (TM) reported earnings that were ahead of expectations on the back of lower interest costs and cost discipline.
Within the mobile segment, Maxis showed strong performance across its postpaid and mobile convergence strategy, registering robust net profit growth of 8% year-to-date.
“We note that competition remained stiff in the home broadband market as TM’s net subscriber growth has remained in low single-digits since the fourth quarter of 2023 (4Q23). This is the result of aggressive bundling of services from both CelcomDigi and Maxis.”
It expects sequentially stronger 4Q24 earnings for CelcomDigi as the bulk of integration costs was booked in 2Q24 and 3Q24.
UOBKH Research said the telecommunication sector has underperformed the FBM KLCI by 17%, due in part to the uncertainty for 5G networks and stiff competition in the home-fibre segment.
“Trading at 6.5 times enterprise value over earnings before interest, taxes, depreciation and amortisation, we feel the current valuation is fair and largely factors in the stiff competition within the prepaid and fixed-line segments to create stickiness in the consumer space, and the 5G issue. We reiterate our market weight stance.”
