This article first appeared in The Edge Financial Daily on September 12, 2018
Telecommunications sector
Maintain neutral: June-August 2018 was relatively quiet in terms of post-paid market activity levels. The Big Three (Maxis Bhd, DiGi.Com Bhd and Celcom Axiata Bhd) did not launch any major new offers, but U Mobile (UM) did raise its brand’s visibility with the launch of a new headline-grabbing RM50/month unlimited plan. However, the plan may appeal only to a specific segment due to a 5Mbps speed cap and UM’s weaker network coverage. After the industry moved to better monetise data from June 2017 to February 2018, there were few seen in June-August 2018.
The prepaid market stayed lively from June to August 2018, but there was no major change in overall competition. UM’s new unlimited data (RM30/month prepaid) offering looks aggressive but has a relatively slow 3Mbps speed cap. Meanwhile, Telekom Malaysia Bhd (TM) further cut the complimentary 4G quota in its #Bebas plan and limit one free SIM per sub. On the international direct dial front, DiGi raised its headline rates to Indonesia, Myanmar and India, while tariffs from other operators were largely unchanged.
In July, TM announced free eight to 10 times speed upgrades for existing unifi Home subs, in anticipation of more attractive offers from competitors after the enforcement of the mandatory standard on access pricing. In August, Maxis revised its Home/Business Fibre Broadband plans. Its 30Mbps Home Fibre plan was priced lower than our expectations at RM89 per month, forcing TM to extend its 30Mbps RM79/month offer beyond Bottom 40 (B40) households, while Maxis’ Business Fibre plans undercut TM’s entry-level package.
The mobile industry service revenue rose a decent about 1.4% quarter-on-quarter (q-o-q) in the second quarter (2Q18) [+0.4% year-on-year (y-o-y)]. Prepaid revenue was only flat quarter-on-quarter (q-o-q) [-5.2% y-o-y], but better compared with 2Q16/2Q17’s -4.5%/-2.4% q-o-q. Postpaid revenue grew 1.6% q-o-q (+4.9% y-o-y) on stronger seasonality and healthy net adds. In the fixed line business, TM’s 2Q18 revenue fell 1.5% y-o-y (+3.1% q-o-q).
Celcom gained 0.5 percentage point (ppt) q-o-q in revenue market share (RMS) to 31.6%, at DiGi’s expense (-0.5 ppt q-o-q to 30%). Maxis’ RMS stayed at 38.4%. Celcom also improved its earnings before interest, taxes, deprectiation and amortisation (Ebitda) market share (EMS) by 1.5% pts q-o-q to 21.8%. Maxis lost EMS for 3Q in a row, down 0.9 ppt q-o-q to 44.4%, while DiGi’s eased 0.6 ppt q-o-q to 33.8%.
We are “neutral” on the local telco sector, with DiGi as our top pick. We have “hold” ratings on Axiata, Maxis and TM. Malaysian telcos trade at a 20% premium over the Asean average 2019 forward enterprise value/operating free cash flow of 14.8 times, supported by decent 2018 to 2020 forward yields of 3.9% to 4.4%. Key upside/downside risks: competition eases/adverse regulatory developments. — CGSCIMB Research, Sept 7