KUALA LUMPUR, Feb 28 — CGS-CIMB has reiterated an ‘underweight’ rating for the telecommunications sector, given the potentially sizable earnings downside risk if the government proceeds with its 5G single wholesale network (SWN) rollout plan via Digital Nasional Bhd (DNB), which it thinks is yet to be fully priced into mobile network operators’ (MNO) share prices.

In its Sector Flash Note, the research firm said a decision on the latter may be announced by the government on March 22.

“We still prefer the fixed segment due to better revenue growth prospects, more benign competition and less regulatory risk. Telekom Malaysia Bhd (TM) remains our top Malaysian telco pick with an ‘add’ rating and target price (TP) of RM7.50 per share, while we have a ‘reduce’ rating on Maxis with TP of RM3.80 per share,” it said.

It noted that key upside risks to the sector’s rating include lower 5G wholesale fees and the cancellation of SWN or MNOs offered equity stakes in DNB.

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In the research note, it said the Malaysian Communications and Multimedia Commission (MCMC) held its fourth quarter (Q4) 2021 conference call to provide updates on the progress of the National Digital Infrastructure Plan (Jendela).

A total of 421,000 new fibre premises were passed in Q4 2021 (1Q/ 2Q/ 3Q 2021: 293,000/ 342,000/ 378,000), encouragingly exceeding the target by 181 per cent.

This brought incremental fibre premises passed to 1.4 million in 2021, mainly driven by TM (eight per cent above target) which continued its accelerated network rollout to capture the robust demand for fibre broadband.

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For mobile, it said upgrades of existing and rollout of new 4G sites were 34 per cent and 127 per cent ahead of targets in Q4 2021 respectively.

Notably, the average 4G download speeds continued to climb 19 per cent quarter-on-quarter to 37.3 megabit per second (Mbps), surpassing the Phase 1 target of 35Mbps a year ahead of target.

While MNOs’ shutdown of 3G sites/ 3G sub migration missed end-Q4 2021 targets by 20 per cent-21 per cent, MCMC said the former was driven by the flood/ monsoon season and aims to complete the 3G shutdown by end-March 2022.

Meanwhile, on the next Mandatory Standard on Access Pricing (MSAP) review, MCMC stressed the importance of policy certainty in providing incentives and the business case for infrastructure investments.

The review will be guided by industry players’ needs and requests to address any issues. — Bernama