Thai telcos downgraded to "neutral" in 5G rollout: Maybank Kim Eng

Maybank Kim Eng has downgraded Thai telcos to "neutral", as the upcoming 5G rollout may create a sector overhang.

Among the Thai telcos bidding for 5G, Maybank put a "buy" call on Advanced Info Service (AIS) and Intouch Holdings, a "sell" call on Total Access Communication (DTAC), and a "hold" call on True Corporation.

"Potentially costly spectrum prices, infrastructure costs vis-a-vis limited room to generate much higher cash flow winnows the most capable player," said Maybank in a research note on Wednesday.

This capital expenditure (capex) burden brought by 5G is worsened by its limited use case in Thailand, Maybank said.

While 5G may be useful due to its low latency and its application in entertainment, like virtual reality and gaming, Maybank holds that the outlook for discretionary consumption of 5G, such as entertainment, is "weak", given the withering income profile of Thais.

In particular, even though South Korea has seen nearly 3 million subscribers paying 25 per cent more for 5G services launched in 2019, with most of them being gamers, Maybank said Thai subscribers are "highly unlikely" to pay a premium.

Even though high tourism traffic can be a potential source of demand, Maybank said it is difficult to "build a solid economic case on transient traffic."

Maybank also noted that smart vehicles and transport have limited applications for 5G, given the chaotic traffic condition in Thailand; using 5G in infrastructure control requires both infrastructure remodelling and agencies' restructuring, which will not be easy; language and technical capability undermine the use of 5G in controlling remote devices; and affordability remains a problem for human machine interaction.

"5G must quickly come up with a viable user case not anchored on individuals' experiences and that would be difficult, in our view," added Maybank.

This comes as 43 per cent of AIS', 54 per cent of DTAC's, and 46 per cent of True Corporation's spectrum license used in 3G and 4G will mature between 2025 and 2027.

Renegotiation on those expiring licenses will incur higher costs for the telcos, which further undercuts the financial support for 5G capex, Maybank noted.

That said, the Thai government is still keen to push 5G rollout with the auction set on Feb 16 and service scheduled to go live by the end of FY20.

"This will increase telcos' debt burden and impact profitability," warned Maybank.

Maybank said among AIS, DTAC, and Intouch Holdings, only AIS has the balance sheet to take on more debt and therefore the capacity to undertake 5G without a major leverage blow out.

AIS and DTAC can also monetise the telco towers if necessary, Maybank added.