Maybank IB Research said its forecasts for telcos are unchanged pending finalisation of MoF Inc’s exit and further clarity on DNB’s earnings outlook.
PETALING JAYA: The Minister of Finance Inc’s (MoF Inc) impending exit from Digital Nasional Bhd (DNB) introduces potential downside risks to its telecommunication shareholders from the equity accounting of DNB’s losses, analysts say.
It is also expected to bring potential earnings risk, as DNB remains loss-making. Last year, DNB recorded a net loss of approximately RM1.2bil, said TA Research.
However, the research house expects service revenue to remain resilient despite the competitive operating environment, as telco operators continue to focus on value-driven propositions rather than engaging in an all-out price war.
Meanwhile, Maybank Investment Bank Research (Maybank IB Research) said its forecasts for telcos are unchanged pending finalisation of MoF Inc’s exit and further clarity on DNB’s earnings outlook.
Nevertheless, telcos could attempt to offset the impact through further capital expenditure (capex) and operational optimisation, the research house added.
In Maybank IB Research’s view, CelcomDigi Bhd
(CelcomDigi) and Maxis Bhd in particular would likely expedite the shifting of traffic from individual networks (thus reducing capex) to DNB’s network.
This would raise utilisation that enhances DNB’s revenue and lower losses.
TA Research expects both CelcomDigi and Maxis will be able to fund this exercise using internal funds, supported by their respective cash balances of RM663mil and RM899mil as of the third quarter of this year.
Upon completion, both companies will account for their 33.3% stakes in DNB using the equity method.
Maybank IB Research remains “neutral” on the sector.
It notes that the fixed-line players (Telekom Malaysia Bhd and TIME Dotcom Bhd) are largely unaffected by 5G shareholding developments.
CelcomDigi, Maxis and YTL Power International Bhd have received put option notices from MoF Inc, requiring them to buy the remaining 42% government stake in DNB, along with assuming the associated loans, accrued interest, and additional shareholder advances.
As per the shareholders’ agreement, each party will fork out RM327.9mil, and this transaction is expected to be finalised within the next two months.
Upon completion, each company will hold a one-third equity stake in DNB.
TA Research said this news is within its expectations.
After MoF Inc’s exit, DNB will transition into a privately led entity, which could lead to greater cost efficiency, stronger capex discipline, faster rollout decisions, and better optimisation of network coverage and infrastructure.
TA Research believes the development is both timely and necessary to ensure DNB remains competitive, particularly with the emergence of U Mobile Sdn Bhd as its main rival.
U Mobile is rolling out a second 5G network, which may affect DNB if access seekers decide to migrate to the alternative provider.
In terms of 5G coverage in populated areas, DNB has achieved approximately 82.4% nationwide as of July, while U Mobile had reached 58.2% as of October.
TA Research has maintained its “overweight” stance on the telecommunications sector.
The research house said the second phase of the Jendela national broadband network, which is anticipated to commence by early next year, should provide further opportunities for local telcos.
“Within our coverage, we have ‘buy’ recommendations on Axiata Group Bhd with a target price of RM3.03, CelcomDigi at RM4.50 and Telekom Malaysia at RM8.45. Meanwhile, we have a ‘hold’ call on Maxis with a target price of RM4.20.
“Key downside risks for the sector include unprecedented price competition and unfavourable regulatory changes,” TA Research said.
