Macquarie Equities Research (MQ Research) published a report on 19 September after attending the launch of the National Fiberisation and Connectivity Plan (NFCP) last Thursday. MQ Research sees the contribution of RM10-11bn from the Universal Service Provision (USP) as positive and rates Outperform on Axiata.

Event

• MQ Research attended the launch of the NFCP last Thursday, where it was announced that RM10-11bn of the planned RM21.6bn investment in the NFCP (2019-2023) will come from the (USP) Fund. This is in line with the message from the regulator in previous meetings. This formal announcement should, at the very least, de-risk the notion that the NFCP would be an added strain on the sector. The Minister of Communications and Multimedia also pointed to a 1Q20 timeline for the finalisation of the spectrum plan which will play an important role in the NFCP.

Impact

• USP Fund to contribute RM10-11bn to NFCP. Today’s confirmation of the RM10-11bn contribution from the USP towards the NFCP is positive, in MQ Research’s view. The Fund had RM7.9bn as at the end of 2017 as per its latest Annual Report. MQ Research understands that industry players will be allowed to bid to carry out the various projects within the NFCP with the bidder seeking the least contributions from the fund for a given project, winning the right to roll out the network. MQ Research notes that the RM21.6bn investment has taken into account operators’ existing capex plans in addition to new areas that the regulator requires coverage/upgrades to achieve the NFCP.

• Mobile spectrum plan to be finalised in 1Q20. According to the Minister of Communications and Multimedia, the mobile broadband spectrum plan is likely to be finalised by 1Q20. Operators have submitted their responses to a Public Inquiry on the matter. MQ Research notes that Telekom Malaysia’s response calls for the creation of a national broadband infrastructure company, with TM’s fibre as a core component and for it to be allocated the bulk of the spectrum in the 700, 2300 and 2600MHz spectrum bands. As MQ Research noted in its recent report, TM’s management has stated that it does not intend to build a fifth mobile network as previously alluded to on their 2Q19 results call.

Outlook

• Within the Malaysian telecoms sector, MQ Research rates Axiata and Time dotCom Outperform. While MQ Research rates Telekom Malaysia a Neutral, MQ Research notes that the worst case scenario of a fifth mobile network buildout is off the cards, and a move to build a national broadband infrastructure company may bring positive outcomes IF approved by the regulator. Within the domestic mobile segment, MQ Research is Neutral on Maxis but like its Enterprise push which should stimulate earnings growth from 20E.

Source: Macquarie Research - 24 Sept 2019