Kenanga’s telco sector amid news of possible second 5G network

[embed]Kenanga Research stays 'overweight' on telco sector following report of second 5G network KUALA LUMPUR (April 17): Kenanga Research has maintained its "overweight" stance on the telecommunications sector…www.theedgemarkets.com

Kenanga Research has maintained its “overweight” stance on the telecommunications sector due to news of the government potentially introducing a second fifth-generation (5G) network. This network is contingent on single wholesale network (SWN) provider Digital Nasional Bhd (DNB) and mobile network operators reaching 5G network coverage of 80% in populated areas. It is expected to spur competition in 5G leasing costs and ultimately lead to lower access prices, resulting in better margins and earnings and sustainable dividend payments.

In 2022, DNB announced that the SWN model would cost telco operators RM30,000 for one gigabit per second (Gbps) per month on 5G leasing charges, resulting in a take-up rate of 1,000 Gbps and a fixed upfront fee. Pakatan Harapan’s new administration has maintained its stance on the telco sector and SWN model, rolling out the 5G expeditiously, efficient telecommunications services to improve the consumer experience, in an attempt to bridge the digital divide, and break the monopolistic structure of the SWN model.

CelcomDigi’s earnings before interest, taxes, depreciation, and amortization margins are above the industry average of 41% to 42%, while the rollout of 5G will boost its subscribers given the absence of Maxis’ presence in this space currently, added Kenanga Research. It also offers competitive pricing and attractive bundling to attract migrant and domestic customers as well as the Bottom 40 group.

As for Maxis, the research firm said the telco has strong branding and customer loyalty, especially in the premium segment. There is also resilient demand for its services as it is ahead of the competitors in terms of putting up new 4G towers, liberalization of premises, and upgrading existing towers, thus boosting its business-to-business revenue.

CelcomDigi Bhd and Maxis Bhd remain Kenanga’s top picks with an “outperform” call on both stocks.