Following the announcement of the MyDigital Economy Blueprint recently, Macquarie Equities Research (MQ Research) reiterated its overweight stance on the Malaysian telecoms sector with preference on the infrastructure player. In the research report dated 22 Feb, MQ Research summarised the fully government owned and sole provider of 5G. MQ Research maintains Telekom Malaysia as its top pick while it prefers Maxis within the mobile space.

Event

• MQ Research attended a teleconference hosted by the Chairman of the MCMC to discuss the MyDigital Economy Blueprint and, in particular, the appointment of a 100%-government owned SPV to rollout the sole 5G network in Malaysia. While details are limited, MQ Research sees the announcement as de-risking the sector further. Mobile operators don’t have to carry the risk of expensive 5G rollouts with elongated repayment periods, while fixed line and other infrastructure providers have the benefit of an added customer. The final outcome of the 5G rollout for the country will boil down to the governance structures which will determine if its goals are met effectively and efficiently. In the meantime, MQ Research maintains its overweight stance on the Malaysian telecoms sector, with Telekom Malaysia MQ Research top pick.

Impact

• Special purpose vehicle (SPV) – government owned and sole provider of 5G. The intention is for the SPV to be 100%-government owned for at least 10 years. And that the SPV would receive 200MHz of 3.5GHz and 1.6GHz of 28GHz spectrum. The SPV will rent elements, eg, fibre, towers from existing operators and rollout fresh networks where necessary to limit duplication. It will also have to ensure redundancy to avoid the risks of a single network. Other operators will not be allowed to use their spectrum to provide 5G services. And access seekers will be given access to the network based on a regulated pricing model.

• Good for mobile. For mobile operators, this will mitigate risks of rolling out a network which may have a longer gestation period – reducing capex related risks. While longer term rentals paid to the SPV will neutralise the cashflow impact of reduced capex, it should be taken positively by the market.

• Good for infrastructure owners. For fibre and tower owners, this structure will mean an added customer for their existing assets and the likely demand for expanded network to fulfil the increased density requirements of a 5G network.

• Outcome for the country – down to execution. Execution, in MQ Research’s view will ultimately determine the outcome for the country. An efficient and effective rollout will mean higher speed networks at a lower cost to take Malaysia forward into the digital age and allow it to compete with its peers.

• Funding unclear. Details of how the SPV would be funded were scant other than the fact that the USP Fund would not be utilised to fund the RM15bn rollout. While bonds can be raised, the issue of elevated government debt may raise issues. Having network elements funded by private enterprise and leased back to the SPV may be another option. Nonetheless, MQ Research expects details to be revealed over time.

Outlook

• MQ Research’s preference within the Malaysian telecom sector remains with infrastructure players, ie, Telekom Malaysia and Time dotcom. In addition to growing demand for data driving utilisation of fibre assets and data centres, they also benefit from the push to digitalise the economy. Maxis is MQ Research’s preferred pick within the mobile space for its pivot into the enterprise market which will in MQ Research’s view drive revenue and earnings growth.

Source: Macquarie Research - 5 Mar 2021