• We reiterate our OVERWEIGHT rating on the sector, supported by sector-wide earnings growth and resilient dividend
• U Mobile's 5G deployment plans are expected to generate more news flow in 2025. CelcomDigi's value unlocking through merger synergies to see stronger momentum, and Axiata on potential corporate development
• We initiate coverage on Maxis (TP: RM4.20), CelcomDigi (TP: RM4.15) and TM (TP: RM8.35) with BUY ratings; HOLD rating on Axiata (TP: RM2.45). TM is our preferred sector pick, due to its strong fibre infrastructure assets and data centre opportunities

Focuses on strategizing its core businesses

Telcos are increasingly concentrating on strategies to boost average revenue per user (ARPU) and grow their subscriber base amid intense industry competition. To achieve these goals, telcos offer more personalized service bundles and embrace Fixed Mobile Convergence (FMC), leveraging data analytics to understand customer preferences better. Significant investments in digital platforms are being made to enhance user experiences. By targeting high-value segments and improving customer retention through loyalty programs, telcos aim to attract new subscribers and maximize revenue from their existing customer base. Maxis, CelcomDigi, TM, and Axiata (infra segment) have expanded their fiber network to meet the growing demand for high-speed broadband while capitalising on the reliability of 5G technologies. We see 5G monetization as a key growth opportunity. The selection of U Mobile as the second 5G network provider last year should see more development in 2025 without collaborating with local partners.

New offerings to bring in more subscribers

Subscriber acquisition remains a crucial focus for telcos as it directly drives service revenue growth. However, ARPU continues to be an important metric to track, especially as the telcos have experienced a decline in ARPU, despite an increase in net subscriber additions. Customers are increasingly drawn to value-for-money deals, leading telcos to introduce a broader range of packages, often at a lower price point. These new, more affordable packages tend to reduce ARPU as subscribers opt for more budget-friendly options. As a result, the sector's blended ARPU has softened, with blended postpaid ARPU at RM65/month (-5% YoY) and prepaid at RM28/month (-2% YoY) in recent quarters. Despite these trends, we expect continued growth in net subscribers across the sector, driven by aggressive marketing campaigns and expanded distribution channels in Malaysia. We expect the sector's postpaid blended ARPU to stabilize in 2025-26E at RM66-67/month, with fibre broadband, blended ARPU hovering at RM120-121, primarily driven by bundling effects.

TM is our preferred sector pick

We reiterate our OVERWEIGHT rating for the sector, supported by sector-wide earnings growth and resilient dividends. We initiate Maxis (MAXIS MK; BUY; TP: RM4.20), CelcomDigi (CDB MK; BUY; TP: RM4.15), and TM (T MK; BUY; TP: RM8.35) with a BUY rating while having HOLD rating on Axiata (AXIATA MK; HOLD; TP: RM2.45). TM is our preferred sector pick due to its strong fibre infrastructure assets and data centre opportunities. Key risks to our call include unfavourable regulatory changes, intensified price wars among telcos, delays in project deliveries, reduced pricing from 5G services, and lower consumer and business spending.

Overview of Malaysia's telecom sector

The rapid growth of smartphone penetration rate. Since the rollout of 4G in Malaysia in 2013, rising smartphone penetration and increased internet usage have led to an 18-fold surge in data traffic. This growth highlights the telecom sector's role in driving digital transformation and meeting the rising demand for high-speed connectivity. Maxis was the first to launch its 4G FDD-LTE network in Jan 2013, followed by Celcom in Apr13, DiGi in Jul13, and U Mobile (non-listed) in Dec13.

The shift in industry dynamic following consolidation. The telecom industry has faced stiff competition, with the top 5 telcos- Maxis, Celcom, Digi, TM, and U Mobile, competing for market share through diverse value-added services. This competitive landscape underwent a significant transformation with the merger of Celcom and Digi in Nov22, resulting in the formation of CelcomDigi. Following the consolidation, CelcomDigi commands 39% market share, surpassing Maxis at 28% based on the total subscriber base. This has led to reduced competition among telcos, with the combined entity now holding a dominant market share in the market.

Source: Philip Capital Research - 27 Jan 2025