Highlighted Companies
Maxis Berhad ADD, TP RM3.85, RM3.53 close
We see core EPS sliding 3.0% in FY22F (due to Makmur tax), before rebounding 19.8% in FY23F (post-Makmur tax, full recovery in roaming and migrant/tourist prepaid SIM sales) and rising 11.3% in FY24F. There is risk of our FY22-24F core EPS being 1.2-18.0% lower if the government proceeds with its 5G single wholesale network (SWN) plans based on the current commercial wholesale offer.
Telekom Malaysia ADD, TP RM7.30, RM5.18 close
We expect core EPS to grow 4.5% in FY22F (partly dragged by Makmur tax), before rebounding 37.9%/12.3% in FY23F/24F post-Makmur tax. Ex-Makmur tax, core EPS may rise 20.0%/20.4% in
FY22F/23F, on the back of Internet, ICT and data services revenue growth, with cost-saving initiatives helping to buffer any pressure from its fibre rollout acceleration.
Telcos sign SSAs to acquire stakes in DNB
- Celcom and Digi have entered into SSAs to acquire a 12.5% equity stake in DNB for RM179m each, while TM will buy a 20% stake for RM286m.
- We think this is a positive development for telcos as it provides greater clarity on the 5G situation. 5G Access Agreements may be inked by 30 Oct.
- Reiterate sector Overweight, with TM (Add, TP: RM7.30) as our top pick. Key risks: low final HSBB access pricing and adverse policy changes post-GE15.
Telcos sign SSAs to buy a combined 65% equity stake in DNB
? Celcom, Digi, Telekom Malaysia (TM) and YTL Communications have on Friday entered into conditional Share Subscription Agreements (SSA) to acquire equity stakes in Digital Nasional Berhad (DNB). Celcom and Digi will pay RM178.6m cash for a 12.5% stake each, and RM113.1m cash for an additional 5% stake each if the Celcom-Digi merger is not completed by 30 Jun 2023. Meanwhile, TM and YTL will each subscribe for a 20% stake in DNB for RM285.7m. The subscription price is the same for all parties, including the Ministry of Finance (MOF), which will hold the remaining 35% stake. Celcom, Digi and TM will subscribe for their stakes via internally generated funds and/or external debt.
The subscription is expected to be completed in 4Q22.
? The SSAs are conditional upon the execution of the 5G wholesale Access Agreements between the telcos and DNB, and a shareholders’ agreement between all DNB shareholders, MOF and DNB. The telcos may terminate the SSA and have a put option to sell their DNB stake to MOF in the first 10 years of the Access Agreement if DNB is no longer the 5G single wholesale network provider in Malaysia or if telcos are entitled to re-deploy their existing spectrum/acquire spectrum to provide 5G services.
? MOF will exempt DNB from corporate income tax for at least five years, and telcos’ equity investment in DNB is deductible from their chargeable income at a prescribed rate p.a. determined by MOF. DNB subscribers will be allowed to hold up to a 20% stake unless there is a merger between two or more DNB of them, in which case the merged entity can hold up to a 25% stake. In the initial stage, DNB’s Board shall comprise 11 members: i) two directors nominated by MOF (one of whom will be Chairman), ii) three
directors nominated by DNB subscribers, and iii) six independent directors.
All 6 telcos to ink 5G Access Agreements with DNB by 30 Oct
? We believe the signing of the SSAs is a positive development for telcos as it finally provides greater clarity on the 5G situation in Malaysia and helps dispel the market’s fears over potentially worse-case scenarios. The next key development for telcos would be the expected signing of the 5G Access Agreements between all six telcos (including Maxis and U Mobile) and DNB by 30 Oct 2022, as per the telcos’ SSA announcements.
Reiterate Overweight on Malaysian telco sector; top pick: TM
? We stay sector Overweight, as we think the potential earnings hit from 5G wholesale fees has already been factored into telcos’ share prices, which are down by an average of 23% YTD. We prefer the fixed to mobile segment due to better revenue growth prospects and more benign competition. TM is our top Malaysian telco pick, though its share price is unlikely to re-rate until the Review of Access Pricing is concluded on 21 Dec, in our view. Downside risks: low final access pricing for high-speed broadband (HSBB) and adverse policy changes after the upcoming 15th general elections (GE15).
