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Telcos, investors warming up to SWN model

Publish date: Tue, 05 Jul 2022, 11:55 AM

KUALA LUMPUR: The steep de-rating of the telecommunication sector in recent months has adequately reflected the market's reservation on the single wholesale network (SWN) model, Kenanga Research said.

The firm said this meant a reversal in share prices might be on the cards once the dust finally settled. 

"We believe telcos and investors alike are warming up to the SWN model, which they had resisted previously. 

"We also see telcos as a service-based industry that is able to maintain their profit margins amidst high inflation by keeping wage pressures at bay," Kenanga Research said in a note today. 

The firm said as the deadline of the telcos' equity participation in Digital Nasional Bhd's (DNB) was fast approaching, they would accept it as they could not afford to sit out the next big evolution in the digital-based economy.

However, the remaining question to be answered is the quantum of the equity participation of large mobile network operators (MNOs) in DNB, the holding company of SWN. 

"We do not rule out the possibility of the large MNOs being granted greater equity participation in DNB in exchange for their unwavering support for the SWN model," it said.

While concerns have been raised on DNB's wholesale fixed capacity charges to support its bond-raising requirements, Kenanga Research does not expect a material increment in the telcos' total outlay to DNB.

This is so as the cost, funding structure and timeline will probably be revised by the new investors (the MNOs) which could influence DNB's pricing mechanism, procurement strategies and cost management.

This will be benefitting the MNOs in the long run. 

"Furthermore, we believe the commitment by the MNOs to DNB's equity participation could likely boost DNB's credit rating in its bond-raising exercise.

Kenanga Research has raised its call for the sector to "Overweight" from "Neutral" previously, with Bhd and Telekom Malaysia Bhd (TM) being its top pick.

"We like Digi for its impending merger with Celcom Axiata Bhd, returning foreign workers will boost its prepaid subscription segment, and superior gross earnings margins among the telcos. 

"We like TM for its foray into the mass market and it being one of the pioneers in 5G service in Malaysia which should drive its broadband subscriptions," it added.

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