KUALA LUMPUR (April 26): Maxis Bhd could work with another consortium partner to lower the cost of deploying the second 5G network, even after the recapitalisation of Digital Nasional Bhd (DNB), said RHB Research in a note on Friday.
On Thursday, DNB named new board members, comprising nominees from the five mobile network operators (MNOs) that had earlier inked conditional share subscription agreements to acquire a combined 70% of the entity.
“We see this as part of the ongoing process (recapitalisation of DNB), with one of the long stop dates for the exercise being 20 business days following a board meeting to be convened, unless agreed otherwise. The equity injection is a prerequisite for a second 5G network,” said RHB.
The research house also noted that the regulator would also need to revoke the ministerial direction issued in 2021 which grants 5G spectrum exclusivity to DNB.
“In our view, Maxis remains a frontrunner for the second consortium, with the telco affirming its readiness to build a second network.
“We believe it could work alongside a consortium partner with significant backhaul connectivity to defray the cost of roll-out,” RHB said.
The research house also did not rule out more partnerships and/or strategic infrastructure mergers and acquisitions to unlock values.
“We see structural drivers (cloud services, enterprise digitalisation and managed services) fuelling the growth of fixed line and telco infrastructure-centric players.
“Infrastructure assets continued to be in the limelight on sustained news flow (ie data centres). This bodes well to illuminate the value of infrastructure assets within a fixed/integrated player.
“Telco infrastructure-centric players that are part of the value chain should also benefit from the recurring theme, in our view,” said RHB.
As such, the research house prefers fixed/integrated and telco infrastructure-centric players (over mobile) given their structural growth catalysts and more resilient earnings.
“The evolving 5G developments could present some trading opportunities. Axiata [Group Bhd] remains a tactical exposure with balance sheet repair as the key thesis. We also like OCK Group [Bhd] as a mid-cap proxy to 5G network expansion and exposure to digitalisation projects,” said RHB.
The research house stayed neutral on the telco sector, with Axiata ("buy", target price [TP]: RM3.40) and OCK Group ("buy", TP: 76 sen) as its top picks.
At the time of writing, Axiata shares were unchanged at RM2.72, valuing the group at RM25 billion, while OCK shares shed half sen or 0.9% to 58.5 sen, translating into a market capitalisation of RM620.7 million.
Meanwhile, RHB expects 5G wholesale charges to pick up due to higher traffic: “The overall quantum should nonetheless still be below the mandated charges under the initial wholesale agreements inked (RM288-RM360 million per annum for base capacity of 800-1,200Gbps).”
The research house noted that competition within the prepaid segment has intensified, underscoring the commitment by MNOs to ensure affordable connectivity on the back of the inflationary environment.
“We expect industry mobile service revenue (MSR) growth to remain subdued in 2H2024 (second half of 2024) with monetisation of 5G impeded by large 4G data quotas and the dearth of retail use cases,” it said, while forecasting overall industry MSR to grow by 1%-3% in 2024, compared to a 1.3% growth in 2023, driven by prepaid-to-postpaid conversion and fixed-mobile bundled services.