The overall outlook for the sector into 2024 remains challenging, plagued by uncertainty pertaining to the phased transition to dual 5G networks.
The possible step-up in DNB lease payments (timing still uncertain) could adversely impact telco earnings.
Maybank Investment Bank (Maybank IB) in a note today (Jan 4) said, meanwhile, concerns over access price reduction for fixed broadband have somewhat dissipated after Maxis finalised its commercial agreement with TM. We prefer telcos with room to optimise costs.
Maybank IB issues BUY ratings on TM and Axiata.
DNB lease payments step-up is an earnings risk
Telcos are currently paying a nominal amount to use DNB’s 5G services. When the required conditions (such as DNB achieving 80% coverage) are fulfilled, the minimum annual fee would rise to MYR360m for Maxis, and MYR288m per telco for the rest.
Maybank IN is unsure if these fees would be revised when the process of setting up Entity B kicks off (introduces uncertainty on partners and capex). Assuming telcos maintain their current level of network investment (thus DCF-neutral), the higher proportion of opex (which is not depreciated) would theoretically be earnings-dilutive to telcos.
Reduced concerns in the fixed space
Concerns over access price reduction for fixed broadband have somewhat dissipated after Maxis finalised its commercial agreement with TM in Dec 2023. Recall, retail prices were already lowered in Oct/Nov 2023.
Maybank IB continues to expect a relatively benign impact to TM’s overall fibre broadband revenue. TM’s upcoming results and fibre broadband operational data would likely be scrutinized upon release.
Relying more on cost optimisation
The telecom industry increasingly depicts a long-drawn race to the bottom as competition hampers monetization and regulatory demands intensify.
As revenue stagnate, we believe telcos can only rely on optimising costs (including engaging in mergers) to preserve earnings. In Malaysia, telcos with headroom to address costs, in our view, are: 1) TM (general costs), 2) Axiata (holding co and finance costs) and 3) CelcomDigi (realisation of merger synergies).
