Investment Highlights

• 4QFY23 results were within expectations. Out of the 4 companies under our coverage, 3 were within expectations while 1 was above. Axiata Group (HOLD, FV:RM2.95) beat our forecasts due to strong performances from XL Axiata and Robi Bangladesh. While within expectations, CelcomDigi (HOLD, FV:RM4.80) and Maxis (HOLD, FV:RM3.90) were affected by declining prepaid segment and higher interest cost. Meanwhile, Telekom Malaysia’s (BUY, FV:RM7.02) net profit grew by double-digit growth in FY23 on the back of tax credit savings and lower interest cost.

• Flattish sector earnings. Sector’s aggregate net profit only inched up 1% YoY in 2023 as strong earnings from TM and Maxis were offset by weaker numbers from CelcomDigi and Axiata. CelcomDigi and Axiata’s revenue were anaemic in 4QFY23. This coupled with higher operating costs resulted in a YoY fall in net profit in 4QFY23. On the other hand, TM’s core earnings surged 64% YoY in FY23 due to a positive tax charge of RM77mil (v. negative RM542mil in FY22), resulting from the recognition of tax credits.

• Maxis recorded healthy subscriber growth QoQ in 4QFY23. Maxis recorded a cumulative net subscriber increase of 230k sequentially while CelcomDigi’s subscriber base fell by 48k QoQ in 4QFY23. The decline in CelcomDigi’s net adds can be attributed to the removal of non-revenue generating prepaid customers. Meanwhile, Maxis’ quarterly net adds expanded by 5% in 4QFY22 thanks to larger postpaid offerings and fixed-mobile convergence.

• EBITDA margin for key MNOs was flat QoQ in 4QFY23. Although the sector’s service revenue improved to 1% QoQ with 892k net adds in 4QFY23, EBITDA margin was flat at 39%. We attribute this to higher operating cost stemming from increased costs of spectrum, software and utilities. The industry’s average revenue per user edged downward to RM43.10/month in 4QFY23 (vs. RM43.40/month in FY22).

• Broadband segment continues to grow. TM maintained its market leadership in the broadband segment in FY23 with 3.1mil Unifi fixed broadband subscribers. This was followed by Maxis (750k subs) and CelcomDigi (131k subs). TM recorded the highest increase in new subscribers in FY23 with 94K additions. Maxis registered an 81k increase in new subscribers while CelcomDigi had 30k new subscribers.

• Sector profit decline of 2% in 2024F. We believe that the sector’s earnings trajectory would be slightly negative in FY24F as TM’s core net profit is expected to decline by 10% to RM1.7bil in FY24F due to the normalisation of tax rates. Also, we expect the other telcos to record flat earnings due to stiff mobile competition. There could also be regulatory risk as the government pushes for lower-priced mobile connectivity.

• Jendela Phase 2 to kick off in 1HFY24. Jendela Phase 1 surpassed its targets in December 2022. The targets included connecting 7.7mil premises with fibre, achieving 96.9% 4G population coverage and maintaining an average mobile network speed exceeding 116.0Mbps. For Phase 2, the goals are 100% internet coverage, mobile broadband speed of 100 Mbps and more than 9mil premises with gigabit speed (up from 7.5mil in Jendela Phase 1).

• Maintain NEUTRAL. We are cautious on the sector due to i) uncertainties on the 5G Dual Wholesale Network’s (DWN) business plan progress, ii) lack of growth drivers, and iii) high operational cost resulting from ongoing tech refresh and site modernisation exercises.

• We reiterate BUY on TM which is expected to be a beneficiary of the national DWN arrangement. TM is envisaged to enjoy higher wholesale business income from 5G rollouts and demand from data centres. Presently, Singapore has limited capacity to cater to demand from the data centre industry due to environmental and regulatory concerns.

Source: AmInvest Research - 15 Mar 2024