“Failure to finalise the 5G plans would weigh on valuations due to uncertainties,” said CGS-CIMB Research.
PETALING JAYA: The move to allow a dual network model for 5G instead of a single one is a viable proposition for Malaysia’s digital future in line with global trends.
Furthermore, it removes the limitations and disadvantages that a single wholesale network (SWN) poses.
With this, there is greater clarity on Malaysia’s 5G future and it will allow the mobile sector to better gauge its future capital expenditure (capex) requirements and cost profiles.
CGS-CIMB Research Research believes the increased capex requirements would weigh on the telecommunication companies’ (telcos) dividend upside in the near term.
However, by its own estimates, the research house said dividends will at least hold steady in financial years (FY) 2023-2024 versus FY22 levels for Maxis Bhd
and Celcom Digi Bhd (CDB).
“Failure to finalise the 5G plans would weigh on valuations due to uncertainties,” said CGS-CIMB Research.
On May 3, the government finally made a decision on the future of 5G for the nation, which permits the rollout of a second 5G network from 2024 onwards.
The decision to have a dual model was following widespread concerns about pricing and competition over a single state-run network.
This also saw the withdrawal of telcos from a deal that required them to take up stakes in Digital Nasional Bhd (DNB), which is entrusted to build the SWN.
CGS-CIMB Research said: “The valuations based on discounted cash flow would naturally be lowered because two networks are being built.”
It viewed the removal of DNB as a 5G network competitor and the greater ability of mobile network operators to control the timing of 5G investments based on economics neutralises the lower cash flows from higher capex.
It has also adjusted the earnings models for some telcos to reflect a dual model, going forward.
The research house said its sector top pick is Telekom Malaysia Bhd (TM), while CDB is its top mobile pick. It also maintained a “hold’’ call for both Axiata Group Bhd and Maxis.
CGS-CIMB Research believes the Mandatory Standards on Access Pricing determination announced in February 2023 would imply a more than 50% cut in retail broadband prices.
A 100Mbps service could see a 9% reduction in regulated wholesale fees, implying much smaller retail price reductions.
For TM, lower wholesale prices should spur retail and wholesale demand and at least hold revenues flat year-on-year in FY23, CGS-CIMB Research said.
Further clarity on TM’s wholesale pricing following the end of negotiations with access seekers in May 2023 should drive a re-rating of TM’s valuations. Its target price for TM is RM6.80 a share.
