The monopolistic SWN model was the key culprit behind the sector’s de-rating over the last 2 years
THE telecommunication sector could be poised for a re-rating if the new government is to abandon the current single wholesale network (SWN) model for the 5G rollout or revise the existing terms to the advantage of the mobile network operators (MNOs), said a local research house.
“The expanded coverage of 4G and the crystallisation of the 5G rollout will expedite the demand for telco services. Telcos’ earnings are resilient with telecommunications having evolved into a necessity of modern life,” according to Kenanga Research which has an ‘Overweight’ call on the telco sector.
Its sector top picks are Digi.Com Bhd (Target Price: RM4.69), Maxis Bhd (TP: RM4.59), Telekom Malaysia Bhd (TM) (TP: RM8.30) and OCK Group Bhd (TP: RM0.95).
The report noted that the monopolistic SWN model for the 5G rollout was the key culprit behind the sector’s de-rating over the last two years.
“On the other hand, there may be concerns over more cuts in broadband rates with the Pakatan Harapan coalition leading a ‘unity’ government after the 15th General Election (GE15). Nevertheless, we see a low risk of this happening as after the steep cut in 2018, broadband package prices in Malaysia now average at US$33 (RM144)/month (from US$45 in 2017) or US$0.14/Mbps, which fall within the range of US$31 to US$258/month in neighbouring countries (see Table 1),” it said.
The report noted that TM, the leading provider of broadband services in Malaysia, lost as much as two-thirds of its market value in five months after the country’s telecommunications regulator, the Malaysian Communications and Media Communication (MCMC), under the recommendation of then Minister of Communications and Multimedia Gobind Singh Deo, rolled out the Mandatory Standard on Access Pricing (MSAP), effecting a 43% reduction in the price of the limited fixed broadband package to RM79/month from RM130/month previously, while tripling the speed to 30 Mbps from 10 Mbps.
Similarly, the unlimited package saw a 61% reduction to RM129, while doubling the speed to 100Mbps. TM suffered a 6% YoY decline in Unifi average revenue per user (ARPU) in financial year 2018 (FY18), but this was mitigated by a 19% increase in subscribers propelled by the improved affordability of the service.
“Earnings of telcos are resilient with telecommunications having evolved into a necessity of modern life. Digital applications for work or pleasure, such as short messaging, virtual meeting, electronic cash payment, e-hailing, online shopping and online food and grocery delivery have become entrenched in everyday life,” the report noted. — TMR
- This article first appeared in The Malaysian Reserve weekly print edition