KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) said it expects significant fibre demand from the growing data centre industry over the next three years.

The investment bank said that fibre's role as backhaul to transfer data at high speeds has become critical, a necessary component in broadband/5G builds.

"Demand for fibre will spike in both capacity and coverage to compensate for 5G spectrum (especially mmWave) propagation shortcomings.

"We also expect exponential demand from the booming data centre industry, particularly in the southern region, over the next three years," it added.

HLIB Research said the surge in wholesale bandwidth demand will boost margins even under the Mandatory Standard on Access Pricing (MSAP) regime.

"Additionally, new fibre rollouts are commercially negotiated (prices not regulated), allowing fixed telcos to command more lucrative returns.

"We are not overly concerned about the new MSAP price revision, as its impact is not as severe as the previous "double the speed, half the price" objective and is expected to be offset by increasing consumption over time," said HLIB Research.

Meanwhile, the investment bank noted that its preference for fixed wireless has proven successful and will continue this approach for the second half of 2024 (2H24), as the 5G rollout will persist regardless of political climate or Single Wholesale Network (SWN) versus Dual Wholesale Network (DWN) structure.

"We believe the second 5G network by Entity B will be superior, more cost-effective, compatible, and seamless, leading to a faster rollout and go-to-market (GTM)," it said.

Furthermore, it said that the telcos' dividend yields, which average circa 2.5 per cent to 3.0 per cent, are not attractive enough relative to the risk-free interest rate to spur domestic and foreign buying interests. 

"Cellcos' foreign shareholdings have been flat with more apparent upticks observed in Telekom Malaysia Bhd (TM)," it added.

HLIB Research has maintained a 'neutral' call on the telecommunications sector, and continues to pick Telekom Malaysia Bhd as its top pick, with a 'buy' call and a target price of RM7.91.

"TM is perceived to be the critical fundamental building block of national 5G DWN and datacenter deployments.

"Furthermore, TM is well positioned as the sole Malaysian cloud service provider when sovereignty is the utmost important in dealing with the government's data," it added.

https://www.nst.com.my/business/corporate/2024/07/1080825/strong-demand-data-centres-fibre-over-next-three-years