KUALA LUMPUR, April 15 ― MIDF Research has maintained a ‘buy’ call on Telekom Malaysia Bhd (TM) after the company had formally signed a 10-year service agreement worth RM2.0 billion with Digital Nasional Bhd (DNB) to facilitate the provision of 5G service effective from August 28, 2021.

MIDF noted the agreement follows the term sheet signed by the two parties on Dec 16 last year for the fibre leasing service.

According to the agreement, DNB will subscribe to 5G RAN-to-Edge Fronthaul and Backhaul as a single end-to-end solution for the provision of fibre connectivity that will enable it to provide 5G service to its customers.

Meanwhile, TM will serve DNB’s 5G infrastructure needs in supporting the government’s aspiration to speed up 5G rollout in Malaysia, it said.

"We are positive on the news and opine that it will drive TM’s revenue higher. As the preferred fibre service provider, we believed TM will continue to pursue 4G and 5G fibre infrastructure deployment as well as promoting collaboration with domestic service providers and align with the government’s Jendela initiative.

"The 5G fibre leasing service for DNB’s 5G infrastructure needs is a testament to TM’s commitment to infrastructure sharing in enabling excellent wireless solutions and services. All factors considered, we are maintaining our ‘buy’ recommendation on TM with an upside of 42.6 per cent,” MIDF said.

In another note, AmInvestmet Bank Bhd is also maintaining its ‘buy’ stance on TM with an unchanged fair value of RM7.10 per share.

It said given that the contract value of RM2 billion over 10 years started from August 28, 2021, it was estimated that TM could be recognising a financial year 2022 (FY2022) cost overprovision of RM67 million which translates to a one-off net profit accretion of five per cent.

"Assuming a net subscriber base of one million, we estimate that the wholesale capacity charge to TM’s unifi Mobile could reach only RM50 million annually. This will be easily dwarfed by the RM200 million annual wholesale revenue from DNB’s fibre leasing arrangement.

"All in, we estimated that the 5G reciprocal arrangement will initially enhance TM’s FY2022 earnings by 10 per cent, gradually tapering against the subsequent growth in mobile users’ data usage,” it said.

So far, AmInvestment noted that TM and YTL Communications are the only two telcos which reached an agreement with DNB in December last year on 5G services. However, TM has delayed the launch amid extensive internal tests, it added.

Recall that the government decided to retain DNB as the sole 5G wholesale network provider in the country following discussions with mobile network operators (MNOs). The research house said the Finance Ministry will no longer wholly own DNB, offering up to 70 per cent equity stakes to MNOs by the end of June 2022.

However, it said the MNOs may be awaiting further details on the proposed shareholding offer before reaching an agreement.

"Given TM’s critical role in the MyDigital initiative with its ownership of the nationwide fibre network, we expect a faster pace of growth for its wholesale revenue beyond FY2022.

"Likewise, TM One’s longer term revenue growth could also accelerate with the group’s appointment as the sole Malaysian cloud provider for government data,” it said.

As at 11.14am, TM’s share price was flat at RM4.94 with 450,600 shares traded. ― Bernama