A resolution in the prolonged issue of 5G dual network implementation will enable investors to form a more definitive view on the mobile network operators’ earnings, capital expenditure and dividend outlook, Kenanga Investment Bank Bhd (Kenanga IB) said. In a research note, Kenanga IB shared that media reports indicate that U Mobile Sdn Bhd aims to deploy the second 5G network (NW2) within the next 15 to 18 months by collaborating with Chinese 5G equipment providers (either Huawei Technologies Co Ltd or ZTE Corporation) which will also provide financing support. Additionally, it was reported that U Mobile plans to secure bank loans to finance NW2’s development, where it will follow U Mobile’s Detailed Business Plan that is currently under review by the Malaysian Communications and Multimedia Commission. While we are positive that NW2 is finally rolling out, we anticipate its scale and capex to be considerably smaller than NW1, it said. It added that based on their channel check, U Mobile is set to deploy 7,000-8,000 5G sites for NW2, but only about 20% (1,400 sites) will be completely new installations, which indicates that tower operators may receive lower contract values compared to NW1. Hence, we expect subdued mobile service revenue growth in 2Q25, in line with the FY25 guidance from CelcomDigi Bhd (low single-digit growth) and Maxis Bhd (flat-to-low single-digit growth),” it said. Meanwhile, Kenanga IB said mergers and acquisitions are expected to have a mixed impact on MNOs’ earnings. For Axiata Bhd, the merger of XL with Smartfren (target completion: 1H25), along with the reduction of its stake in XL to 47.9% (from 66.5%), could create an earnings gap. Consequently, the deconsolidation of XL is expected to more than offset the earnings contribution from the merged entity. Furthermore, as CelcomDigi Bhd enters its third-year post-merger, we anticipate further earnings uplift from additional net synergies. This builds on the RM1.6 billion realised in 2023-2024, primarily driven by capex avoidance (RM1.35 billion) and P&L savings,” it added. It shared that competition in the home broadband space will remain intense in 2Q25 as MNOs and Telekom Malaysia Bhd (TM) aggressively target convergence customers. This is likely to drive volatility in net adds and average revenue per user, depending on the extent of their discounting, freebies, and rebate offerings,” Kenanga IB said, adding that TM and TIME dotCom Bhd remain the firm’s top picks for the sector.

Scale And Capex Of Second 5G Network Likely Much Smaller

Kenanga Investment Bank Bhd (Kenanga IB) provided insights on the second 5G network (NW2) deployment by U Mobile Sdn Bhd, predicting a smaller scale and capex compared to NW1. The deployment is set to be completed within 15 to 18 months, with U Mobile planning to install 7,000 to 8,000 5G sites, of which only 20% will be new installations. The bank also discussed the impact of mergers and acquisitions on mobile network operators' earnings, highlighting the earnings gap from the deconsolidation of XL after its merger with Smartfren. CelcomDigi Bhd is expected to benefit further from additional net synergies post-merger.