Differing prospects for Asean telcos in 5G rollout: DBS

Advanced Info Service (ADVANC) is DBS’ top pick, thanks to its “strong financial position” and “solid earnings growth momentum.” 
JANUARY 17, 2020 - 5:29 PM

5G offers profitable opportunities for telcos in Singapore and Malaysia, but Thai telcos may face some risks from a higher capital expenditure (capex) burden, said DBS.

This is because Thailand will likely price its 5G spectrum much more expensive than that in Singapore and Malaysia, noted DBS.

DBS expects Thai telcos to pay above regional average for 5G spectrum, as the country will likely launch 5G in 2021. 

On the other hand, “5G spectrum is very cheap in Singapore,” said DBS. The 3.5 gigahertz (GHz) band will cost just about S$55 million as base price and S$154 thousand as an annual fee for 15-year usage, much lower than the 4G prices. 

The Malaysian government is also expected to provide 5G spectrum at concessionary prices for telcos, noted DBS.

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Further, both Singapore and Malaysia encourage joint bidding for 5G licences to reduce the capex burden, while Thai telcos has yet to announce any network sharing deals.

With only two nationwide 5G network licences are up for grabs, DBS expects StarHub to team up with M1 to share the capex of the 5G network, while Singtel will likely go solo with its bid in Feb 2020.

Malaysia’s Celcom and Maxis have already signed a memorandum of understanding to explore network sharing opportunities to reduce capex burden.

In Case You Missed It: The Business Times reported on Jan 15 that Maybank Kim Eng has downgraded Thai telcos to “neutral”, given “potential costly spectrum prices” and a limited use case for 5G in Thailand. 

On the other hand, DBS remains positive on Thai telcos’ mobile revenue growth in FY20, banking on growing data consumption and a lack of intense data pricing competition.

Advanced Info Service (ADVANC) is DBS’ top pick, thanks to its “strong financial position” and “solid earnings growth momentum.” 

“Given its secured postpaid subscribers, we expect ADVANC to maintain its revenue growth momentum in FY20,” DBS said.

“The impact of the 5G spectrum auction should be least sensitive to ADVANC’s share price thanks to its large scale operations,” added DBS.

Meanwhile, DBS likes Digital Telecommunications Infrastructure Fund (DIF) for its “good mix of assets and potential growth from asset acquisitions in the future.”

Elsewhere, DBS listed NETLINK as its top pick in Singapore’s telecom sector, followed by Singtel and Starhub. 

This is because NETLINK offers “much superior yield and growth with much lower risks,” said DBS. 

DBS noted that NETLINK’s around 5.8 per cent yield in FY21 is higher than the average yield of 5.2 per cent offered by industrial Singapore listed real estate investment trusts (S-Reits), even though NETLINK has a longer asset life than S-Reits, a debt-to-equity ratio that is less than half of S-Reits’, and a low correlation with the business cycle. 

Meanwhile, DBS said Singtel will likely benefit from rise in associates market value and reduction in holding company discount below 10 per cent, leading to about 5 per cent yield and 8 per cent earnings compound annual growth rate from FY20 to FY22. 

As for Malaysia, DBS continues to like TIME for its strong growth profile, supported by both its wholesale and retail segments, while Axiata is also recommended by DBS for its “attractive” risk-reward profile and potential improvement in Celcom performance. 

EXCL emerges as DBS’ top pick in the Indonesian market, owing to its above industry revenue growth and expanding margins.