CGS-CIMB Research said: “Our base case assumption is for Maxis and CelcomDigi to be the key stakeholders of the two networks."
PETALING JAYA: CGS-CIMB Research expects Maxis Bhd
will build the second of the two 5G networks, once the clarity on the 5G network ownership and buildout issues is resolved in the first half of this year.
This will also remove a key uncertainty for the local telecommunications sector, the research house said.
As announced by the listed telecommunication company (telco), the due diligence exercise on Digital Nasional Bhd (DNB) is set to be completed by end-March 2024.
With DNB’s 5G network coverage at 80%, according to the Communications Minister, the process to move to a dual wholesale network (DWN) can soon begin.
CGS-CIMB Research said: “Our base case assumption, built into our estimates for the telcos, is for Maxis and CelcomDigi Bhd to be the key stakeholders of the two networks, with Maxis likely to lead the second network.
“We believe the resolution of network ownerships will reduce uncertainties around capital expenditure, funding and therefore, earnings and dividends of the mobile operators in particular.”
Meanwhile, CGS-CIMB Research’s economics team estimates Malaysian private consumption grew 4.9% in 2023 before likely accelerating to about 6.5% in 2024.
“We estimate Maxis and CelcomDigi Bhd delivered a 0.7% year-on-year (y-o-y) decline in aggregate non-fibre service revenues in 2023, with 1.4% y-o-y growth in 2024,” it said.
It added that new solutions, especially in the enterprise space, are key to boosting growth for mobile operators.
While 5G provides the opportunity, the research house believes operators will need to step up efforts to convince large and small businesses that the incremental investment in digitalisation will drive positive financial outcomes.
“This is especially in an environment where the cost of labour remains relatively low,” added CGS-CIMB Research.
The research house retained a “hold” call on Maxis with a lower target price of RM4 compared with RM4.26 previously.
This is to reflect the new trading range post-industry consolidation as announced in 2021, when the Celcom-DiGi merger was unveiled, versus a post-2010 range previously.
“We believe the lack of growth catalysts will cap Maxis’ multiple upside,” said CGS-CIMB Research.
It noted that there has been a clear de-rating of the mobile operators including Maxis since 2021 and it believes this new range is a fairer reflection of the valuation basis, going forward.
“It is also worth noting that Malaysian mobile operators, despite this de-rating, are trading at a premium over their Singapore and Indonesian peers.
“Historically, higher-than-average dividend yields and a relatively benign regulatory/competitive environment supported premium valuations relative to regional peers but these have diminished over time.”
CGS-CIMB Research said it believes the de-rating of the Malaysian mobile operators has been driven by slower growth in mobile service revenues, uncertainty around 5G ownership and implementation and a structural shift in fund allocations to other sectors.
“The key upside risk for Maxis’ valuations would come from a structural uplift in revenue and profit growth, which would in turn support higher dividends,” it added.
However, the downside risks would come from failure to sustain revenue and profit growth and increased regulatory scrutiny, leading to higher capital expenditure spend on its network.
