Celcom-Digi merger outcome, digital bank winners key developments for telecom sector - RHB Investment

KUALA LUMPUR, April 28 (Bernama) -- The outcome of the merger between Celcom Axiata Bhd and Digi.com Bhd together with the revelation of digital banking winners are among key developments to look out for in the telecommunication sector, said RHB Investment Bank Bhd.

In a note, it said both cellular companies have indicated that the merger is progressing as planned, with target completion by end of the second quarter of 2022 (Q2 2022).

It said a statement of issue (SOI) raised by the regulator recently as part of the merger assessment process has nonetheless raised some red flags with the telcos requesting them to respond on matters highlighted within 30 days.

“While there is a possibility that a dissenting view may be issued (notice of objection) by the Malaysian Communications and Multimedia Commission (MCMC), we think the risk is low.

"This is because the regulator had previously maintained an accommodative stance on market consolidation and the overall merger construct. The SOI could potentially delay the timeline for completion of the merger to the second half of 2022 (H2 2022)," it said.

Meanwhile, the investment bank noted that Bank Negara Malaysia (BNM) is expected to announce the winners of the five digital banking licences soon.

"We see the Axiata/Boost-RHB JV (Axiata Group/Boost Holdings/RHB Banking Group joint venture) as a front-runner for the coveted licence.

"There is scope for greater value extraction for Axiata’s digital services arm, Axiata Digital Services (parent of Boost) which holds a 60 per cent stake in the JV consortium in the long term given the addressable market of more than RM40 billion for digital lending which comprised the unbanked and under-banked segments of the population," it said.

Therefore, RHB Investment has maintained its neutral rating on the telecommunication sector with a slightly stronger mobile revenue uplift for 2022.

"The reopening of borders to international travellers and the lifting of mandatory tests are supportive of industry mobile revenue with a recovery in roaming revenue and prepaid starter pack sales from Q2 2022.

“Overall, we see a two to three per cent uplift in industry mobile service revenue for 2022 from the 1.3 per cent growth in 2021.

“Key risks for the sector are competition, regulatory and earnings setbacks. Preference still on fixed-line operators, given the still stiff cellular market competition and uncertainties surrounding 5G wholesale agreements,” it said.

-- BERNAMA