KUALA LUMPUR: Maxis Bhd could be the frontrunner in the bid to build Malaysia's second 5G network, outpacing other contenders like CelcomDigi Bhd and U Mobile Sdn Bhd, according to CIMB Securities.
Although Telekom Malaysia (TM) also submitted its application, the research firm noted that TM might have become ineligible after the termination of its share subscription agreement (SSA) with Digital Nasional Berhad (DNB) on August 23, following DNB's refusal to extend the deadline for TM to obtain shareholder approval.
"At present, our base case is Maxis would emerge the winner, as we theorise that the government may want a government-linked company like CelcomDigi, to lead Digital Nasional Bhd (DNB)," RHB said.
Additionally, with YTL involved in DNB, a CelcomDigi and YTL partnership could be viewed as a strong counterbalance to a Maxis-U Mobile partnership, it said.
"However, we think CelcomDigi winning the tender, with Maxis, U Mobile, and YTL staying put at DNB, is still a possibility. Other permutations may be too lopsided, in our view," it said in a note.
The Malaysian Communications and Multimedia Commission (MCMC) is expected to announce the winner of the spectrum to roll out the second 5G network under Entity B next week, two months after telecommunication companies (telcos) submitted their applications for the tender on July 31.
According to CIMB Securities, the winning telco is expected to enter into an equity partnership, or long-term lessor-lessee arrangement, with other telcos, allowing it to share the cost of rolling out the second 5G network, as well as align with the belief that the government wants DNB and Entity B to be of roughly equal size in terms of 5G traffic.
The firm also anticipates a kneejerk reaction following MCMC's announcement, with the winning telco's share price rising, while the losing telco may see the opposite reaction.
This is because the second 5G network is expected to have better quality of service, as the rollout will be largely mapped to the winning telco's existing network grid, allowing for more seamless handovers when subs move between 2G/4G/5G networks.
In addition, investors may also see the winner as having a cost advantage over telcos that stay on with DNB.
"If the losing telco's share price declines sharply, we believe investors should take the opportunity to accumulate. The losing telco can work with its network vendors to carry out optimisation works to reduce handover issues over the next two years, while Entity B is rolling out its coverage.
"Meanwhile, to resolve the cost imbalance issue, we believe DNB has room to rationalise cost and may receive wholesale fees from Entity B to lease part of its network in the more rural areas, or government grants or tax incentives," it said.
CIMB Securities maintains sector "overweight," with CelcomDigi (TP: RM4.20) and Maxis (TP: RM4.15) as the top picks.