• Still NEUTRAL; Executing well on targets. The number of fiber premises passed and mobile broadband speeds were ahead of the targets set under the Jalinan Digital Negara (JENDELA) programme. Mobile network operators (MNOs) should be able to attain the 4G population coverage target by the year end (1Q22: 95.52%). We maintain our sector recommendation with preference for fixed-line plays. Top Picks are Telekom Malaysia (TM), Time dotCom (TDC) and Axiata Group. Key risks are competition, weaker-than-expected results, and regulatory setbacks.

• Fiber premises passed at 94% of year-end target. At its quarterly briefing on 22 Apr, the regulator highlighted the number of fiber installations completed during the quarter was 179,666 (6% ahead of the 170,017 target). As such, the 7.5m premises initially targeted by the year end should be achieved by mid-2022. TM, which has the lion share of fiber premises committed, surpassed its target by 36.1%, with 5.9m cumulative fiber homes passed in 1Q22. While TDC and Celcom met their targets, Maxis fell short of its target due to component shortages and permitting issues. The regulator also confirmed a MYR4bn tender for fiber points of presence (POP), which comes under the purview of the Ministry of Communications and Multimedia. We gather the project would cover schools, residential, and commercial/industrial hubs nationwide with Phase 1 (involving over 4,000 schools) awarded to three parties, while the outcome of the Phase 2 tender will be known by end 2Q22.

• Upgrade of base transceiver station (BTS) impacted by floods. The MNOs (Celcom, Digi, Maxis, and U Mobile) met the new 4G site target of 60 for the quarter, with Digi witnessing a slight shortfall (94%). This was caused by extended permit approvals required in Sabah from the Civil Aviation Authority of Malaysia, as some of its sites were located on the flight path. On base station upgrades, most MNOs (with the exception of Maxis) reported a shortfall due to the massive floods that hit the country. As a result, the industry was only able to meet 89% of the initial 2,491 BTS sites to be upgraded. Meanwhile, the broadband wireless access or BWA, via satellite has reached 95.1% of the target, with 798 sites completed.

• 5G reference access offer (RAO) discussions ongoing, and moving in the right direction. The regulator indicated that discussions are ongoing between the MNOs and Digital Nasional (DNB) on the RAO document published in early April. Digi said discussions involve both pricing and nonpricing elements, with a key area being deliberated upon by MNOs being data traffic demand projections. The RAO forms the basis for MNOs to enter into binding 5G wholesale access agreements with DNB. The MCMC said discussions on the sale of up to 70% stake in DNB are running concurrently, with the aim to complete all discussions by end June.

Source: RHB Securities Research - 25 Apr 2022