KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research), which has a neutral call on the telecommunication sector, continues to favour wired over wireless for being the prime beneficiary of broadband/5G infrastructure deployment.
Confident that 5G rollout will continue regardless of political climate or whether in single wholesale network (SWN)/dual wholesale network (DWN) structure, the firm expects the second 5G network by Entity B to likely be superior, cheaper, more compatibility and seamless, leading to a faster rollout and go-to-market strategy.
"Besides 5G, we expect exponential fibre demand will be coming from the booming data centre industry over the next three years," it said in a note.
HLIB Research has Telekom Malaysia Bhd (TM) as its top pick, supported by an unchanged discounted cash flow (DCF)-derived target price of RM7.18.
The bank said it is particularly positive on TM's cost optimisation measures which is now yielding an impactful outcome. "Leveraging on its extensive fibre reach, TM is perceived to be the critical fundamental building block of government's 5G rollout under MyDigital initiative. "Furthermore, TM is well positioned as the sole Malaysian Cloud Service Provider when sovereignty is the utmost important in dealing with government's data," it noted.
HLIB has a RM7.18 a share target price for TM.
HLIB Research also said the impact of the new Mandatory Standard on Access Pricing (MSAP) price revision is expected to be mild and likely to be offset by ever increasing consumption.
It added that telco dividend yields are not attractive enough relative to the risk-free interest rate to spur domestic and foreign interests.
"With the amalgamation of Celcom and Digi, we expect healthier market rivalry with lesser price undercutting for market share gain," it noted.