Telecommunications
Telecommunication - Gearing up for 5G
Mon, 09-Oct-2023 11:59 am
by Lee Cherng Wee • Apex Research

• Review. Bursa Malaysia Telecommunication Index was flat in 3Q23, hovering below 600 pts after coming off its peak of near-640 pts in 2Q23. Operation-wise, the industry remains steady with healthy subscriber and ARPU levels. Prepaid subscribers were supported by the return of foreign workers while Postpaid subscribers continue to see growth due to migration from Prepaid. Meanwhile, ARPU continue to inch lower gradually due to competitive pricing but remains steady.

• Outlook. After a long delay, Maxis (HOLD, FV: RM4.44) finally signed the 5G access agreement with DNB. Moving forward, telcos including CelcomDigi (HOLD, FV: (RM4.08) will now focus in rolling out 5G plans. However, we are
concerned whether capex allocation for 5G rollout could affect dividend payouts as Maxis has reduced its dividend payments to conserve cash for 5G investment.

• Valuation & Recommendation. Previous national budgets have seen the government allocating huge amounts to construct telecommunication infrastructure. As such, we expect Budget 2024 to benefit players such as Opcom Holdings Bhd (NR), OCK Group Bhd (NR), Telekom Malaysia Bhd (BUY, FV: RM6.31), ITMAX System Bhd (NR), and Mestron Holdings Bhd (NR).

• Our top pick would be Telekom Malaysia Bhd backed by its market leadership in the home fibre segment which is operating in a less competitive landscape against the mobile segment. While Axiata (BUY, FV: RM3.27) continues
to face challenges in its overseas operations, we opine the worst could be over as the situation stabilises in Sri Lanka.

• Key Risk. Regulatory risk, higher-than-expected 5G capex affecting cashflow and dividend, excessive price competition.

• Summary. All in all, we are Neutral on the telecommunication sector on the back of continuous demand for data. However, the prospects of unattractive dividend yields may discourage longer term investors.

Recommendation: Neutral
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