TELECOMMUNICATION

Sector report Ready to move forward with 5G

20 Dec 2022 NEUTRAL
AmInvestment Bank (Maintained)
Team Coverage
+603-2070 2444 Rationale for report: Sector update

Investment Highlights

 Net subscribers expanded. Cellular net subscribers increased by 208k to 31.7mil in 3Q2022 as a decline in Celcom
subscribers by 117k was offset by a net gain of 119k for Maxis and 206k for Digi. Maxis’ net increase in subscribers was
mainly attributable to postpaid segment from Maxis and Hotlink. On the other hand, Digi’s prepaid segment reported the
strongest growth since 2020 with net additions of 177k, likely due to returning of migrant workers while the postpaid segment
net additions was 164k, driven by its attractive bundling offerings.
 Maxis maintained its market leadership with an overall subscriber market share of 37% vs. Digi’s 34% while Celcom
remained third at 30%. However, Digi has now retaken its pole position in the prepaid segment with the highest market share
of 35% from Maxis, which comes a close second at 34%. Nevertheless, Maxis’ postpaid subscriber focus and convergence
strategy with its fibre broadband services remain superior compared to Digi and Celcom. Recall that Digi was the market
leader in term of subscriber market share between 1Q16 and 4Q19, backed by its strength in the prepaid segment.
Separately, the 3 largest mobile network operators’ (MNOs comprising Maxis, Digi, and Celcom) 3Q22 blended average
revenue per user (ARPU) was largely stable at RM44.3/month (vs. RM44.6/month in 2Q22 and RM44.9/month in 3Q21).
 Key MNOs’ 3Q22 earnings improved 6% sequentially to RM870mil despite a flattish revenue of RM1.5bil (-0.3% QoQ).
The margin improvement was mainly attributed to disciplined cost management at Digi and Celcom, which led to the decline
in operating expenditure. The best performer was Digi which saw normalised PATAMI jump 14% QoQ to RM242mil after its
lacklustre 2Q22 performance. This was followed by Axiata Group’s (Axiata) Celcom, which registered PATAMI growth of
12% QoQ while Maxis declined 4%, dragged by higher amortisation costs.
Post-3Q22 results, Maxis and Digi made no changes to their FY22F normalised EBITDA guidance. Maxis retained flat-to-
low single-digit increase and Digi low single digit decline. Meanwhile, Axiata expects tol beat its high single-digit EBIT growth
target. TM revised its EBIT guidance to more than RM2.3bil from more than RM1.8bil previously, and revenue to mid-to-high
single-digit from low-to-mid single-digit growth.
 Digi-Celcom merger completed on 30 November 2022. After the merger, Axiata Group (Axiata) and Telenor Asia (Telenor)
will have equal ownership in the merged entity at 33.1%. Recall that the corporate exercise involved transferring its 100%
equity interest in Celcom to Digi for a total consideration of RM17.8bil which is satisfied via cash and new Digi shares. Upon
completion, Axiata received 33.1% of Digi new shares and cash of RM2.5bil. 3 months after the completion of the merger,
an extraordinary general meeting will be convened for shareholders’ consideration to change the merged entity name to
Celcom Digi. The company previously shared a synergy target of RM8bil over a 5-year period from the merger.
 Digital Nasional (DNB) equity structure finalised. With the completion of the merger, the Digi-Celcom merged entity will
own a 25% equity stake in DNB, while TM and YTL Communications will hold 20% with the remaining 35% equity stake
going to the Ministry of Finance. On 5G wholesale capacity charges, the merged entity’s minimum commitment will be a
combined value of Celcom and Digi as the access agreement was signed prior to the completion of the merger. Recall that
the 5 telcos, namely Digi, Celcom, YTL Communications, U Mobile and Telekom Malaysia (TM), that signed the access
agreement are committing to a minimum capacity commitment of 800Gbps/month, which translates into a wholesale fee of
RM288mil per annum.
 Maintain NEUTRAL outlook on the sector as the higher opex from DNB’s fixed 5G annual wholesale capacity charge on
telcos will likely more than offset escalated data demand. While the consolidation of 2 major cellular operators may help
to ease competition, the slower economic growth outlook and sustained inflationary pressure could depress subscribers’
affordability. However, we may upgrade the sector if the global recession next year turns out to be shallower-than-expected
together with positive reception by consumers towards the 5G product rollouts. A negative sharp turn in consumer
sentiments due to sustained inflation and recessionary fears could cause us to downgrade our rating. On the government’s
plan to review DNB’s 5G network deployment, we would be positive on any potential revision of the contracts awarded
could reduce leakages with the cost savings trickling down to the telcos.
 Reiterate our BUY call for TM (FV RM7.24) as we continue to see the group as the sole beneficiary for Malaysia’s 5G
roll-out given its ownership of the High-Speed Broadband and Sub-Urban Broadband networks. Meanwhile, we are
currently in the midst of reviewing our recommendations and forecasts on Axiata and Digi following the recent completion
of the merger.
 Environment, social, governance (ESG). Local telcos have minimal ESG issues with low carbon footprints on the
environment given the nature of operations. Furthermore, they are actively involved in corporate social responsibility
projects while maintaining good corporate governance practices.
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 EXHIBIT 1: VALUATION MATRIX

Share price Fair Value Upside EPS growth (%) PE (x) NDPS (sen) Div. Yld.(%)
Stock FYE Recommendation
(RM) (RM) (%) CY2022F CY2023F CY2022F CY2023F CY2023F CY2023F
Telekom Malaysia Dec BUY 5.12 7.24 41.4 15.3 12.1 14.5 12.9 13.7 3.3
Maxis Dec HOLD 3.73 3.90 4.5 (3.0) (1.9) 23.0 23.4 20.0 5.4
As at 16 December 2022

Source: Bloomberg, AmInvestment Bank

EXHIBIT 4: TOTAL SUBSCRIBERS TREND EXHIBIT 5: KEY MNOS BLENDED ARPU TREND
('000) RM/month
14,000 50
12,000 48
10,000
46
8,000
44
6,000
4,000 42

2,000 40
0 38
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22

1Q20 3Q20 1Q21 3Q21 1Q22 3Q22

Maxis Celcom Digi Maxis Celcom Digi
Source: Respective companies, AmInvestment Bank Source: Respective companies, AmInvestment Bank

EXHIBIT 4: POSTPAID SEGMENT – SUBSCRIBERS TREND EXHIBIT 5: POSTPAID SEGMENT – ARPU TREND
('000) RM/month
5,000 90
4,500
85
4,000
3,500 80
3,000 75
2,500 70
2,000
65
1,500
1,000 60
500 55
0 50
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22

1Q20 3Q20 1Q21 3Q21 1Q22 3Q22

Maxis Celcom Digi Maxis Celcom Digi
Source: Respective companies, AmInvestment Bank Source: Respective companies, AmInvestment Bank

2
 EXHIBIT 4: PREPAID SEGMENT – SUBSCRIBERS TREND EXHIBIT 5: PREPAID SEGMENT – ARPU TREND
('000) RM/month
9,000 35
8,000 34
7,000 33
6,000 32
5,000 31
4,000 30
3,000 29
2,000 28
1,000 27
0 26
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22
1Q20 3Q20 1Q21 3Q21 1Q22 3Q22
Maxis Celcom Digi Maxis Celcom Digi
Source: Respective companies, AmInvestment Bank Source: Respective companies, AmInvestment Bank

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Telecommunication 20 Dec 2022

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