This article first appeared in The Edge Financial Daily on December 19, 2019
Telecommunications sector
Maintain neutral: In September-December, Celcom Axiata Bhd launched XP Lite to address the fierce competition in the low-average revenue per user segment and offered rebates to subscribers who register online. Maxis Bhd’s new RM99/month Hotlink Flex Plus Fibre offer comes with an aggressive 34% bundling discount and target new subscribers in the low- to mid-range segments. Telekom Malaysia Bhd (TM)’s unifi Mobile extended the RM59/month promotion (usual price: RM99/month) for its 99 unlimited plan to all users (previously: civil servants and business users only), valid until Dec 31. redONE Network Sdn Bhd (mobile virtual network operator) launched a new RM28/month plan that offers significant video and social media data quotas.
TM offered new and existing unifi home and business subscribers three-month fee waivers upon activation, upped its 100/300/800Mbps unifi business plan speeds by eight to 10 times and cut the price of its base 100Mbps unifi business plan by 22% to RM139/month. TIME dotCom Bhd launched no-contract variants of its 100Mbps-1Gbps unlimited home fibre broadband plans. Astro-Maxis are offering pay television-broadband bundles with 9-23% discounts. Overall, the market was still active and competitive.
Mobile industry service revenue slid 4.1% year-on-year (y-o-y) (ex-wholesale: -1% y-o-y) for the third quarter of 2019 (3Q19) due to lower wholesale revenue, interconnection rate cuts and tight competition. Quarter-on-quarter (q-o-q), it was just down 0.1%. Celcom lost 0.5/2.6 percentage points q-o-q in revenue/earnings before interest, taxes, depreciation and amortisation market share to Maxis and DiGi.com Bhd. In the fixed-line business, TM’s revenue rose 3% q-o-q (-3.2% y-o-y) on a land sale.
We keep our “neutral” rating on the sector, given weak mobile and fixed revenue growth prospects. The Malaysian telecommunications sector’s FY20 forecasted (FY20F) enterprise value/operating free cash flow of 15.9 times is at a 14% premium over the Asean telecommunications average, with decent FY18-FY21F core earnings per share compound annual growth rates of 9%. Downside risks: more intense competition and adverse new regulations. Upside risk: Mergers and acquisitions. Our preferred pick is Axiata Group Bhd (“hold”; target price: RM4.45). — CGS-CIMB Research, Dec 17