KUALA LUMPUR (July 5): Kenanga Research believes that telecommunications players will accept equity participation in Digital Nasional Bhd (DNB) as they cannot afford to sit out the next big evolution in the digital-based economy driven by the 5G technology and the Fourth Industrial Revolution (IR 4.0).
The research house also did not rule out the possibility of large mobile network operators (MNOs) being granted greater equity participation in DNB, in exchange for their unwavering support for the single wholesale network (SWN) model.
“The remaining question to be answered is the quantum of equity participation of large MNOs (Celcom, Digi, Maxis and U Mobile) in DNB, the holding company for the SWN.
“While concerns have been raised over DNB’s wholesale fixed capacity charges to support its bond-raising requirements, we do not expect a material increment in the telcos’ total outlay to DNB,” it said in a note on Tuesday (July 5). It added that the cost, funding structure and timeline would probably be revised by the new investors (the MNOs), which could influence DNB’s pricing mechanism, procurement strategies and cost management, 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.
“This is also a win for national interest as it accelerates Malaysia’s IR 4.0 progress, boosted by efficient mobile speeds at affordable tariffs,’’ it said.
Hence, Kenanga Research has raised its rating of the telecommunications sector to "overweight" from "neutral" as it feels the uncertainties surrounding the 5G roll-out have been priced in by the market, thus there will be a potential rerating of the sector once the dust finally settles.
“While there are no changes to our financial year 2022/23 earnings forecasts, our target prices (TPs) are revised down for all to reflect higher cost of debt (on a higher risk-free rate),’’ it said.
“Our top picks within the sector are Digi.Com Bhd (TP: RM3.70) and Telekom Malaysia Bhd (TM) (TP: RM6.70),” it added.