• The Covid-19 pandemic revealed growth opportunities offered to industry players as digital connectivity becomes critical in ensuring continuity of business and daily activities nowadays.
• Malaysia made significant strides in developing and enhancing network infrastructure, as indicated by increased in the percentage of populated areas with 4G access, improved average mobile data speed, and premises covered in accessing fixed stable broadband through JENDELA and 12th MP initiatives.
• Resuming coverage on Telecommunication sector with Neutral. Our top pick is TM (BUY; TP: RM7.58) due to robust outlook on its business clusters, namely Unifi, TM One, and TM Wholesale. We also like TIME (BUY; TP: RM6.65) owing to the optimistic prospects, i.e solid demand and growth for data and data center services.

Moving towards digital connectivity ahead

The Covid-19 pandemic has demonstrated the vital function of internet access in sustaining life, business continuity and integrating digitalization to enhance efficiency and productivity. This has been demonstrated by the increase in internet traffic and the growing number of internet consumers, compelling the government and industry players to enact multiple incentives to improve consumer experiences, i.e. providing related internet access incentives (PRIHATIN stimulus package), and network infrastructure development (JENDELA, 12th MP plan).

Network infrastructure development is now underway

Malaysia made significant strides in network infrastructure development as a result of the government initiatives, notably JENDELA and the 12th Malaysia Plan (12MP). This underpinned the positive progress recorded on the increased percentage of populated areas with 4G access, improved average mobile data speed, and growing premises covered in accessing fixed stable broadband – implying that the country is moving to provide better quality of experience and connectivity to the people as digitalisation is embraced in daily lives.

Exploit opportunities of new path

We view that such an optimistic outlook for data centre and cloud services demand will benefit service providers, particularly TM and TIME, in their efforts to deliver services to the industry. Besides, the implementation of MyDigital by the government, together with growing demand from the public and private sectors to move toward digitalization, might act as a major driver in increasing demand for digitalization-related services.

NEUTRAL on the sector, BUY TM and TIME

Resume coverage on the Telecommunication sector with Neutral rating due to slowing growth ahead. However exponential growth opportunities offered for industry players in data center revenue and digital connectivity are becoming a critical aspect in ensuring continuity of business and life activities nowadays. Our top pick is TM (BUY; TP: RM7.58) owing to the favourable outlook indicated by robust new subscriber growth, pent-up demand for data centres and cloud services for industry demands (public and enterprise), and development of 4G and 5G network infrastructure. We also like TIME (BUY; TP: RM6.65) owing to the optimistic prospects indicated by solid demand and growth for data and data centre services, as well as contributions from the retail and enterprise segments.

Source: BIMB Securities Research - 13 Apr 2022