Monetisation opportunities emerged from providing 5G and generative artificial intelligence (Gen AI)-powered cloud solutions to enterprise clients.
The announcement of the 5G Dual Network policy directive was expected to resolve uncertainty affecting sentiment, benefiting fixed players with strong demand for fibre optic backhaul and submarine cables and infrastructure players with participation in the rollout of 5G towers in regional markets.
Kenanga Investment Bank (Kenanga), in their report today (June 21) maintained an OVERWEIGHT rating on the telecommunication sector, highlighting the potential of 5G and Gen AI in boosting enterprise sales and anticipated positive impacts from the 5G Dual Network (DN) policy directive, which would finalise equity stakes for telco players in entities A and B, facilitating Malaysia’s transition from the 5G Single Wholesale Network model to DN.
Telco players were capitalising on Gen AI by expanding cloud solutions to include AI tools and applications. MAXIS and AWS were collaborating to push Gen AI and 5G for customers in retail, manufacturing, logistics, and financial services, including training a large language model in Bahasa Melayu.
CDB and AWS also aimed to offer personalised Gen AI applications, potentially uplifting enterprise sales in 2HCY24 and beyond.
Mobile ARPU trends indicated a potential uplift in postpaid ARPU for MAXIS and CDB, driven by converged offerings and new channels for corporate individuals.
However, prepaid ARPU was expected to remain weak due to competitive pressures and prepaid-to-postpaid migration trends, with high-end prepaid users likely upgrading to entry-level postpaid plans.
Fixed broadband market growth was expected to normalise, with TM’s Unifi Home and MAXIS’ home fibre showing reduced net additions.
However, strong demand growth for wavelength services was anticipated, driven by recent data centre investments from tech giants like AWS, Microsoft, and Google.
TM was set to benefit from increased demand for fibre optic backhaul and submarine cables, connecting data centres to global networks.
Infrastructure players like OCK were expected to gain from new tower contract awards due to 5G rollouts in regional markets including Laos, Vietnam, and Indonesia.
In Malaysia, the completion of DNB’s SSAs was anticipated to sustain the deployment of the first 5G network and the development of the second network through co-location and new infrastructure projects.
Service revenue expansion opportunities were identified in diversifying telco revenue streams to include managed services, integrated cloud services, 5G solutions, enterprise solutions, cybersecurity services, and wholesale business.
This diversification was driven by trends like enterprise digitalisation, 5G technology deployment, Gen AI, and increased data centre investments.
Kenanga’s top picks in the sector were TM and CDB. TM was favoured for its leverage towards data growth, benefit from JENDELA phase 2 projects, and earnings potential from new hyperscale data centres and submarine cable networks.
CDB was recommended for its merger synergies, robust free cash flow yield, and leading market share in the postpaid and prepaid segments.
Investors were advised to consider the telecommunication sector for its strong growth prospects and emerging opportunities in 5G and Gen AI.
