Rationale for report: Sector update

Transcription

1 Alex Goh Sector report 19 Dec 218 Investment Highlights TELECOMMUNICATION Regulatory overhang exacerbates market pressures Rationale for report: Sector update NEUTRAL (Maintained) Regulatory overhang remains a key sector risk, highlighted by the Pakatan government s commitment to resume the former government s agenda to double the speed at half the price. The new MCMC chairman, AlIshsal Ishak, who was appointed on 1 October this year, has warned that he would ensure the government's objective to provide highspeed broadband nationwide is achieved with some operators likely to be reprimanded over regulatory breaches. Additionally, the government's intention to reduce Khazanah Nasional's holdings in governmentlinked companies (GLCs) casts shadows of a share overhang. Impact of lower fixed broadband ARPUs deferred to 4Q218. Even though TM s 3Q218 results showed a surprisingly resilient unifi ARPU, we do not expect this segment to defy gravity with the almost 4% price cut in its 3Mbps plan to RM79/month, which was announced in early July and expected to be gradually implemented towards the end of this year. As such, we expect customers' gradual migration towards the more affordable governmentmandated plans to substantively cut TM's immediate earnings. With Maxis riding along with TM s price cuts, we expect lower margins from fixed broadband, as forewarned by Time DotCom s CEO despite registering a strong 3Q218 performance. Focusing on the bottom line amid tepid revenue growth. As revenue growth increasingly faces headwinds, telcos are increasingly focused on higher value customers, optimising existing assets and drive cost efficiencies via lower tower rental reversion rates, single supplier sourcing for bulk discounts and digitalisation initiatives. Limited counter measures to U Mobile s GX3. Since the middle of 218, few rivals have launched a comparable package to counter U Mobile s prepaid GX3 which offers unlimited data with speeds up to 3Mbps for just RM3/month. Recall that U Mobile also launched postpaid GX which provides unlimited voice and data with speeds up to 5Mbps for. Digi has offered prepaid options starting at RM38/month which offers data quota at 5GB and unlimited data usage for 12 hours during the less busy period between noon and midnight. Prepaid options at RM3/month from Celcom offers 15GB data, Maxis only provides 1GB while Unifi s Bebas prepaid plans have more flexible options which include data quotas with no time expiry. Postpaid plans for Digi start at RM58/month for 1GB data, Celcom offers RM8/month for 2GB data and Maxis RM98/month for 3GB. However, Digi also offers unlimited voice and data plans via online registration at higher priced for speeds of up to 1Mbps, similar to Unifi mobile s unlimited voice and data plan at RM99/month. In our view, near to mediumterm revenue growth outlook remains weak given market forces are constantly driving ever more competitive marketing plans. As U Mobile and Unifi mobile wrestle for new customers on the unlimited mobile data arena, prospects will deteriorate for incremental service revenue accretions in the sector. Growing postpaid segment stabilises service revenue. Overall, 3Q218 mobile subscribers declined 177K QoQ and 781K YoY to 32mil primarily in the prepaid segment amid tight competition and ongoing SIM consolidation. Since the beginning of this year, Celcom registered the largest decline of 316K followed by Maxis 12K. Digi managed to grow by 57K as postpaid accretion more than offset the prepaid loss. However, 9M218 sector revenue was flattish as the decline in prepaid subscribers was offset by the higher value postpaid segment, which expanded by 155K QoQ and 46K YoY in 3Q218 to 8.7mil. Maxis remains revenue leader on postpaid strength. Digi pulled further ahead with its top subscriber market share at 37% vs. Maxis 34% while Celcom remained a distant third at 29%. Digi s pole position since 1Q216 stemmed largely from its continuing strength in the prepaid segment, underpinned by the migrant population, which lost the least subscribers. However, Maxis remains strongest in the postpaid segment with an ARPU and subscriber base which are 29% and 14% respectively higher than Digi s. This places Maxis in the leading position for sector revenue with a 3Q218 market share of 41% vs. Celcom s 3% and Digi s 29%. Sector can be derated on resumption of revenue declines given the tight competition amid a decreasing subscriber base. Besides the existing mobile wars, the fixed broadband segment under TM s unifi, Maxis Home Fibre and Time dotcom faces daunting prospects of declining ARPUs amid the government s plans to develop a dataintensive socioeconomy. Sector upgrades only if prospects for stronger topline momentum materialise. A sector rerating requires catalysts for stronger revenue growth prospects demonstrated in subscriber, ARPU and margin expansions. As the global landscape for rapid data trajectory is driven by lower price plans and increasingly expensive capex rollouts to provide wider fixed broadband and 4G capabilities, coverage and service quality, any significant organic revenue or margin growth improvement is unlikely over the next 12 months. Maintain NEUTRAL call given the continued intense competition in both the mobile and fixed broadband markets. Our only BUY is Axiata due to its low bargain FY18F EV/EBITDA of 5x, way below its 2year average of 8x vs Maxis' 13x. AmInvestment Bank Bhd 1

2 Source: Company, AmInvestment Bank Market EXHIBIT 1: VALUATION MATRIX EV/EBITDA Stocks Call capitalisation Fair value FY18F FY19F CY18F CY19F CY18F CY19F CY18F CY19F FY18F EBITDA Net debt/ RMmil RM/share x x x % % % % x Axiata BUY 33, Maxis UNDERWEIGHT 4, Digi HOLD 33, Telekom HOLD 8, (5.2) PE Div yield ROE EXHIBIT 2: REVENUE BREAKDOWN EXHIBIT 3: REVENUE CHANGES 2, QoQ (%) RMmil 2,4 2,3 2, 2, 2, 1,9 1,8 1,7 () () () () 1,6 () () 1, () () Celcom Maxis Digi QoQ Celcom Maxis Digi EXHIBIT 4: EBITDA BREAKDOWN EXHIBIT 5: EBITDA MARGIN QoQ (%) % 1, , 1, 1, () () (6.) (8.) 3 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q Celcom Maxis Digi QoQ Celcom Maxis Digi Sector AmInvestment Bank Bhd 2

3 EXHIBIT 6: PATAMI BREAKDOWN EXHIBIT 7: PATAMI CHANGES QoQ (%) RMmil (5.) (1.) (15.) (2.) () () () Celcom Maxis Digi QoQ Celcom Maxis Digi 35 % EXHIBIT 8: PATAMI MARGIN 3. RMmil EXHIBIT 9: EBITDA CHANGES () () 1 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 Celcom Maxis Digi Sector () () Celcom Maxis Digi EXHIBIT 1: MOBILE SUBSCRIBERS EXHIBIT 11: PREPAID SUBSCRIBERS ' ' 15, 14, 13, 12, 11, 1, 9, () () () () (5.) 12, 11, 1, 9, 8, 7, 6, 4 2 (2 ) (4 ) (6 ) (8 ) Maxis Celcom Digi Total change Maxis Celcom Digi Total change AmInvestment Bank Bhd 3

4 EXHIBIT 12: POSTPAID SUBSCRIBERS EXHIBIT 13: PREPAID SUBSCRIBER CHANGES ' ' (total) 3, 3, 2, 2, 1, 1, () () () () (5.) 1, () (1,) (1,) 1, () (1,) (1,) (2,) (2,) Maxis Celcom Digi Total change Maxis Celcom Digi Total EXHIBIT 14: POSTPAID SUBSCRIBER CHANGES ' (total) EXHIBIT 15: BLENDED ARPU () () (3) (4) 3 () () (3) () () () () (5.) () (4) Maxis Celcom Digi Total Maxis Celcom Digi Avg Change EXHIBIT 16: POSTPAID ARPU EXHIBIT 17: BLENDED ARPU CHANGES (QoQ) ' () () (6.) (1) (2) (3).5 (.5) () (1.5) 7 (8.) (4) () Maxis Celcom Digi Average Maxis Celcom Digi Avg Change AmInvestment Bank Bhd 4

5 EXHIBIT 18: PREPAID ARPU EXHIBIT 19: POSTPAID ARPU CHANGES 44 1 QoQ () (2 ) () () (5.) 5 (5) (1) () () (6.) (8.) 28 (6.) Maxis Celcom Digi Average Maxis Celcom Digi Avg Change EXHIBIT 2: PREPAID ARPU CHANGES (1) (2) (3) (4) QoQ RM/user (.5) () (1.5) () Maxis Celcom Digi Average AmInvestment Bank Bhd 5

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