This article first appeared in The Edge Financial Daily on December 20, 2019
Telecommunications sector
Maintain neutral: Capital expenditure (capex) risk for 5G could begin in 2020 if the regulator succeeds in its second half of the year (2H20) 5G deployment target. For now, we still expect telecommunication companies’ capex to be relatively manageable given the likelihood of greater sharing of infrastructure.
Separately, given an emphasis on sharing infrastructure, we view that a single 5G infrastructure company (infra-co) model’s relevance now appears diminished. On a relative basis, our preferred sector pick is DiGi.com Bhd with a “hold” call and a target price (TP) of RM4.80.
We gathered from the Malaysian Communications and Multimedia Commission’s briefing on Wednesday that precursors — the National Fiberisation and Connectivity Plan, spectrum awards and an infrastructure sharing framework — to 5G deployment are progressing as planned. In particular, details on spectrum awards and the deployment model could be announced by January 2020.
The regulator is maintaining its target for 5G to be deployed from 2H, meaning the capex risk for 5G could begin in 2020 instead of 2021. We expect a relatively manageable risk given the likelihood of greater sharing of infrastructure.
The regulator is aggressively promoting the sharing of infrastructure, aiming to lower costs for the industry. The framework or policy on active sharing of infrastructure, encompassing network equipment and spectrum, is currently being formalised and would likely feature prominently during the 5G deployment. Given an emphasis on sharing infrastructure, we view the relevance of a single 5G infra-co — as proposed by Telekom Malaysia Bhd — now appears diminished.
We have “hold” ratings on the telecommunication companies that we cover, as we view their risk-reward profiles as being merely balance for now.
Our preferred big-cap pick for the sector is DiGi given its low propensity for negative earnings surprises along with a sector-leading dividend yield.
A notable mention is Axiata Group Bhd (“hold”; TP: RM4.30), whose earnings recovery thesis is now potentially deferred to 2020 barring no further disappointments, after under-delivering on earnings for 2019. — Maybank IB Research, Dec 19