The possible step-up in DNB lease payments could adversely impact telcos' earnings, Maybank IB Research said. — Bloomberg
PETALING JAYA: Challenges are abound in the telecommunications sector this year due to uncertainties pertaining to the phased transition to dual 5G networks.
The possible step-up in Digital Nasional Bhd (DNB) lease payments, for which the timing is still uncertain, could adversely impact telecommunication companies’ (telcos) earnings, said Maybank Investment Bank (Maybank IB) Research.
It added that concerns over access price reduction for fixed broadband have somewhat dissipated after Maxis Bhd
finalised its commercial agreement with Telekom Malaysia Bhd (TM).
The research house said retail prices were already lowered in October and November 2023. It expects a relatively benign impact to TM’s overall fibre broadband revenue.
The research house prefers telcos with room to optimise costs. It has “buy’’ calls on TM and Axiata Group Bhd at target prices of RM5.66 and RM2.38 a share, respectively.
It added that the telecoms industry increasingly depicts a long-drawn race to the bottom as competition hampers monetisation and regulatory demands intensify.
As revenue stagnates, it believes telcos can only rely on optimising costs, including engaging in mergers to preserve earnings.
In Malaysia, telcos have headroom to address costs. For TM, it is about addressing general costs, Axiata on its holding companies and finance costs and CelcomDigi Bhd about realisation of merger synergies.
It added that telcos were currently paying a nominal amount to use DNB’s 5G services.
When the required conditions such as DNB achieving 80% coverage are fulfilled, the minimum annual fee would rise to RM360mil for Maxis, and RM288mil per telco for the rest.
Maybank IB Research said it was unsure if these fees would be revised when the process of setting up Entity B kicked off, which does introduce uncertainties on partners and capital expenditure.
Assuming telcos maintain their current level of network investment, the higher proportion of operational expenditure, which is not depreciated, would theoretically be earnings-dilutive to telcos.
It said there were several risk factors for its earnings estimates, price targets and ratings for the Malaysian telcos.
