BIMB Research remains “overweight” on the telco sector, citing anticipation of better 5G monetisation in the long run.
PETALING JAYA: Following a steady performance, the outlook for Malaysia’s telecommunications (telco) sector remains positive amid the transition to fifth-generation (5G) technology.
According to BIMB Research, despite the uncertainties surrounding the finalisation of 5G dual network model and the concern that it may constrain share price growth for telco companies in the medium term, the long-term outlook for the sector is still optimistic.
“The enterprise segment is projected to bolster earnings as digitalisation becomes crucial for both private and public sectors to stay competitive,” the brokerage wrote in its report.
“Additionally, we anticipate that technological convergence will allow telco players to innovate and expand their service offerings,” it said, noting emerging technologies like the Internet of Things (IoT) and cloud computing are expected to present new opportunities for telco sector.
BIMB Research maintain “overweight” on the telco sector, citing anticipation of better 5G monetisation in the long run and improved sentiment on certainty on the final structure for Malaysia’s 5G network.
Attractive 5G-related bundling packages as well as convergence plans to support average revenue per user (ARPU); higher investment in data centres; and anticipation of higher 5G adoption rate which lead to wider range of service offerings and further room for earnings growth were also basis for the brokerage’s optimistic stance on the sector.
In addition, BIMB Research said expectations of recovery in roaming contributions due to increased usage by migrant workers and tourists could also boost the telco sector, noting Malaysia’s tourism sector aims to welcome 27.3 million tourists in 2024.
BIMB Research’s top picks for the sector are Telekom Malaysia Bhd
(TM), with a target price of RM7.77, and TIME Dotcom Bhd, with a target price of RM6.09.
It said TM was seen as the main beneficiary in providing services for both public and private sectors, while Time dotCom has a positive long-term business outlook, supported by strong demand for data and data centres.
BIMB Research said the recent second-quarter (2Q24) corporate earnings season for all the five telco companies under its coverage delivered outcomes in line with expectations, with improved performance driven by better service revenue and increased demand for data.
Meanwhile, RHB Research noted that the 2Q24 core results of the telcos were steady on good cost controls, improved CelcomDigi Bhd merger synergies and tight competition.
“Mobile network operators (MNOs) continue to slug it out on fibre-mobile bundles with lower ARPU from entry level plans,” the brokerage said.
Post-2Q24 result season, RHB Research lifted its forecasts on CelcomDigi and Maxis Bhd, while estimates were lowered for OCK Group Bhd.
It reiterated its “neutral” stance on the sector. Its preferred stocks in the sector are Axiata Group Bhd, CelcomDigi and OCK.
“Axiata was the sole outperformer in the June reporting season, while OCK fell short of our consensus numbers.
“Axiata’s earnings were bolstered by the strong operating performance of its mobile assets in Indonesia, Bangladesh, Cambodia and its towerco unit (edotCo) with first half of 2024 (1H24) earnings before interest and tax growth of 40% being ahead of 2024 key perfomance indicators of mid-teens growth,” RHB Research said.
“OCK’s earnings were crimped by weaker billings from the engineering and contracting segment due to the uncertainties on the 5G second network process with the earnings slack to be partly made up for in 2H24,” it added.
Four MNOs have submitted their tender for 5G spectrum, namely TM, Maxis, CelcomDigi and U Mobile Services Sdn Bhd.
“The outcome is expected by 4Q24 with spectrum to be awarded on an apparatus assignment basis.
“We see Maxis as a front-runner for the second 5G network,” RHB Research said.
