Macquarie Equities Research (MQ Research) wrote a report on Malaysia’s telco following the recent meeting with MCMC’s Chairman and the representative from telco operators. MQ Research highlighted that the updates from MCMC were encouraging; one of them include the government’s commitment on providing connectivity and taking Malaysia into the digital age.

MQ Research opines that the 5G-related bundles could be introduced by mobile operators in 2022-23 while providing its views on the telco companies such as Telekom Malaysia (TM) and Time.

Event

• MQ Research attended MCMC’s National Digital Network (JENDELA) 4Q update recently, jointly held by MCMC’s Chairman, Dr Fadhullah, with representatives from telco operators. MQ Research was encouraged by the progress and the government’s commitment to provide connectivity and take Malaysia into the digital age.

Impact

• All 3 KPIs achievable by end-2022 in Phase 1. 3 key targets were set for Phase 1: 1) 7.5mn home broadband (HBB) premises passed 2) 35 Mbps mobile broadband speed and 3) 96.9% 4G coverage. As at Sept’ 21, MCMC said that Malaysia had achieved 6.43mn premises passed (6.05mn/5.71mn as of June/March 2021), 31.34Mbps mobile broadband speed (26.03Mbps/25.44Mbps as of June/March 2021) and 94.03% 4G coverage (93.77% as of March 2021). Dr Fadhullah reassured that there will be no changes to JENDELA’s targets, despite the change in the Minister of Communications in August 2021.

• Sustainable industry requires market liberalisation. MCMC’s Chairman stressed on the fact that the right approach is needed to ensure that industry players remain profitable, to encourage network investment, which is crucial for the industry’s progress. TM’s COO for Commercial and Technology said that its fixed broadband usage had increased from 190GB/month pre-MCO to >400GB/month in Sept’ 2021, while monthly HBB prices have not changed. MQ Research hopes this further alleviates investors’ concern about the upcoming Mandatory Standard of Access Pricing (MSAP) in 2022.

• Premises passed achievement, a positive read through for TM. Given TM is the dominant HBB provider in Malaysia, MQ Research sees a positive read through from MCMC’s announcement for its Unifi business, although MQ Research notes that Time did not meet its JENDELA target this quarter, due to movement restrictions in high-rise buildings to deploy its infrastructure (it expects to catch up in Q4’21). Although there will be migration to work-from-office in the coming months, MQ Research believes the hybrid working model will continue to support strong HBB net additions for the industry.

• 5G progress on course. About 5G, MCMC reassured that conversations are on between DNB and telco operators to ensure commercial arrangements will be in line with markets’ requirements to ensure a win-win monetisation opportunity for both parties. MCMC guided that prices for 5G on a per-GB basis should be lower than those of 4G. In this regard, MQ Research expects to see more 5G-related bundles introduced by mobile operators in 2022-23, which could weigh on their medium-term earnings before interest, taxes, depreciation and amortization (EBITDA) margins due to heavy bundle discounts, and updates by fixed-line operators on procurement exercises related to leasing arrangements for fibre infrastructure in the next 1-2 quarters.

Outlook

• MQ Research continues to be bullish on the Malaysian telco sector and prefer fixed vs mobile players on the back of higher earnings potential due to the 5G roll out, as they will serve as infrastructure providers. Order of preference: TM > Time > Maxis > Axiata > Digi.

Source: Macquarie Research - 27 Oct 2021