Positive reversal on the cards for telcos

04 Oct 2022 - The Star Online

KUALA LUMPUR: Kenanga Research is optimistic that telcos and investors will soon agree on the implementation of the single wholesale network (SWN) model for the rollout of 5G services in the country.

In a sector update, the research firm said it expects four of the six telco operators to sign on the dotted line with regards to the SWN in the 5G rollout.

It also reiterated its view that the commitment by the mobile network operators to Digital Nasional Bhd's equity participation will likely boost the latter's credit rating in its bond-raising exercise to roll out 5G.

"This is also a win for national interest as it accelerates Malaysia’s IR 4.0 progress, boosted by efficient mobile speeds at affordable tariffs," it added.

Meanwhile, Kenanga noted that 5G coverage has reached 27% of the population with the targeted 37% expected to be reached by the end of the year.

Also positive for the sector outlook is the expectation of continued resilient demand from consumers and businesses, supported by wider coverage at the end of Phase 1 of the Jendela initiative.

"As of 1HCY22 a total of 7.2 million premises (2022 target: 7.5 million) now have access to fibre broadband and 95.6% (vs 2022 target of 96.9%) of populated areas have access to the 4G coverage.

"Meanwhile, the average mobile broadband speed has also increased to 40.13 Mbps (megabits per second), surpassing the original Phase 1 target of 35 Mbps," said Kenanga.

Selected locations like Cyberjaya, Putrajaya and Kuala Lumpur now have 5G access, to be followed by major towns in both Peninsular and East Malaysia.

"Players like Axiata (via Celcom) and Digi look set to benefit from the wider coverage and reaching to the remote corners of Malaysia, and the return of migrant workers.

"Telco operators which are able to roll out 5G services the soonest will have a first mover advantage given the limited availability of 5G at the moment," said Kenanga.

Reiterating its "overweight" call on the sector, it added that excluding Axiata, the telcos are domestically driven plays that are spared external headwinds.

The research firm's top picks with "outperform" recommendations are Digi with a target price of RM4.25, Telekom Malaysia with a target price of RM7.95 and OCK with a target price of 95 sen.

In terms of connectivity, satellite and 5G services have been accelerated to 4QCY22 from the initial Phase 2 target with 893 sites deployed with satellite broadband, it added.


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