KUALA LUMPUR (March 17): CGS-CIMB Research has maintained its “Underweight” rating on the telecommunications (telco) sector after the government decided to continue with the 5G SWN model, while offering up to a 70% stake in Digital Nasional Bhd (DNB) to mobile network operators (MNOs) that sign a wholesale agreement.

In a sector update Wednesday (March 16), the research house said this may potentially be positive for MNOs if they are able to better steer DNB’s 5G rollout to lower the total cost, wholesale fees and earnings impact.

The research house said with a 70% stake, MNOs may be able to better steer DNB’s 5G network rollout, such that it lowers the current total cost of RM16.5 billion (inclusive of RM4 billion corporate cost), and raise the proportion of leasing from MNO-owned sites.

“With this, coupled with a lower reliance on debt, DNB may be able to cut the 5G wholesale fees and change the charging structure to be more traffic-based, in our view.

“This would hit MNOs’ earnings less, while any share of DNB’s net losses will only be accounted for via a reduction in the investment value in MNOs’ balance sheets,” it said.  

CGS-CIMB said having equity ownership also gives MNOs greater assurance that DNB will continue to be well managed in the long term

“Reiterate Underweight on Malaysian telcos for now, as many details are still pending the government’s negotiations with the MNOs. Top pick: Telekom Malaysia Bhd,” it said.

Read also: https://www.theedgemarkets.com/article/govt-maintain-swn-model-5g-rollout-offer-70-stake-mnos-finance-minister

https://www.theedgemarkets.com/article/dnb-welcomes-govt-decision-maintain-swn-seeks-engage-telcos

https://www.theedgemarkets.com/article/big-four-telcos-welcome-govts-decision-stick-swn-dnb-stake-offer-5g-rollout