UMobile to Implement the Second 5G Network

The Malaysian Communications and Multimedia Commission (MCMC) has announced U Mobile Sdn. Bhd. (UMobile) as the winner of Malaysia’s second 5G network bid. Subject to MCMC's approval, UMobile is allowed to collaborate with other telcos in implementing the new 5G network. To recap, MAXIS, CELCOMDIGI, TM, and UMobile submitted their tenders to the government in August to bid to implement Malaysia's second 5G network.

Our View

We welcome this latest development as it finally concludes the party in charge of implementing Malaysia's second 5G network, following the government’s decision in May 2023 to shift from a Single Wholesale Network to a Dual Wholesale Network model. This will help clear up the uncertainty in the sector that has weighed on investor sentiment.

Despite a setback for MAXIS, CELCOMDIGI, and TM, they will all be able to continue offering 5G services due to an access agreement with Digital Nasional Berhad (DNB). Currently, MAXIS, CELCOMDIGI, UMobile, and YTL Communications each hold a 16.3% stake in DNB. This latest development could signal UMobile’s exit from DNB. Meanwhile, the existing shareholders of DNB can now fully focus on implementing cost optimisation initiatives at DNB.

For UMobile, it currently has around 9mn subscribers. We do not rule out the possibility that UMobile might partner with other experienced telcos to develop the second 5G network jointly. We believe MAXIS could be the preferred partner, given its smaller subscriber base (around 10mn) compared to CELCOMDIGI (around 20mn), as MCMC is likely inclined to see both 5G networks have a similar number of subscribers or a similar size to maintain the competitiveness.

Upgraded to Overweight

Although we expect some knee-jerk reactions to the share prices of the losing telcos, we believe that investors should take this opportunity to bottom-fish, as the uncertainty surrounding the implementation of the second 5G network has now been cleared. Therefore, we upgraded the sector call from Neutral to Overweight.

Within our universe, we upgraded our recommendation for AXIATA (TP: 2.65) from Hold to Buy following the recent share price weakness. Meanwhile, we maintain our Buy recommendations for TM (TP: RM7.93) and CELCOMDIGI (TP: RM4.58) and a Hold recommendation for MAXIS (TP: RM3.80). Key downside risks include unprecedented price competition and unfavourable regulatory changes.

Source: TA Research - 4 Nov 2024