KUALA LUMPUR (April 15): Telekom Malaysia Bhd's (TM) 10-year service agreement worth RM2 billion with Digital Nasional Bhd (DNB) to facilitate the provision of 5G services will boost the former's earnings and revenue, analysts said on Friday (April 15).

“Given that the contract value of RM2 billion over 10 years starting from Aug 28, 2021, we estimate that TM could be recognising an FY22 (financial year ending Dec 31, 2022) cost overprovision of RM67 million, which translates into a one-off net profit accretion of 5%,” said AmInvestment Bank analyst Alex Goh.

According to him, DNB’s reference access offer (RAO), recently published on its website, sets 5G wholesale capacity pricing at RM30,000 per Gbps on a monthly basis for the first 1,200Gbps, while subsequent capacity is at RM22,000 per Gbps.

 

“Assuming a net subscriber base of one million, we estimate that the wholesale capacity charge for TM’s unifi Mobile could reach only RM50 million annually. This will be easily dwarfed by the RM200 million annual wholesale revenue from DNB’s fibre leasing arrangement,” he said.

All in, he estimated that the 5G reciprocal arrangement will initially enhance TM’s FY22 earnings by 10%, gradually tapering against subsequent growth in mobile users’ data usage.

“Hence, we expect TM to sign up soon notwithstanding main cellular operators Celcom Axiata Bhd, Digi.Com Bhd, Maxis Bhd and U Mobile Sdn Bhd pending agreement to the key terms of the RAO,” he said.

According to him, TM and YTL Communications Sdn Bhd are the only two telcos which reached an agreement with DNB last December on 5G services. However, TM has delayed the launch amid extensive internal tests.

“We remain positive on this earnings-enhancing development for TM’s quadplay ambitions as 5G roll-outs could positively levelise the cellular playing field against larger and more entrenched operators,” he said.

Additionally, he said rising data traffic from 4G and 5G usage will mean escalating demand for TM's nationwide fibre backhaul infrastructure and notably value-added services above the current mandatory standard access pricing regime.

Given TM’s critical role in the MyDIGITAL initiative with its ownership of the nationwide fibre network, he expects a faster pace of growth in its wholesale revenue beyond FY22.

Likewise, TM ONE’s longer-term revenue growth could also accelerate with the group’s appointment as the sole Malaysian cloud provider for government data, he added.

He reiterated his "buy" call on TM with an unchanged fair value of RM7.10.

“The stock currently trades at an attractive FY22 enterprise value to earnings before interest, taxes, depreciation and amortisation ratio of five times versus its three-year average of six times, with a fair dividend yield of 3%,” he said.

In a separate note, MIDF Research said it is positive on the fibre leasing service agreement and opined that it will drive TM’s revenue higher.

“We adjust our revenue and earnings forecasts for FY22/23 upward by 2.8/2.7% and 2.8/2.5% respectively as we are sanguine that TM’s revenue growth will remain intact, especially with the establishment of the 10-year service agreement with DNB,” it said.

As the preferred fibre service provider, it believes TM will continue to pursue 4G and 5G fibre infrastructure deployment as well as promoting collaboration with domestic service providers, aligned with the government’s JENDELA initiative.

“The 5G fibre leasing services for DNB’s 5G infrastructure needs are a testament to TM’s commitment to infrastructure sharing in enabling excellent wireless solutions and services. All factors considered, we maintain our 'buy' recommendation on TM with an upside of 42.6%,” the research house said, while maintaining its target price for TM at RM6.91.

At the time of writing on Friday, TM had risen six sen or 1.21% to RM5, valuing the group at RM18.64 billion.

Year to date, the counter has fallen 9.42%.