Investment Highlights

• 30 September deadline for new broadband prices. Communications and Multimedia Minister Gobind Singh Deo has said that telecommunications companies (telcos) have until 30 September this year to submit proposals for lower priced broadband packages to the Malaysian Communications and Multimedia Commission (MCMC). Recall that this is part of the Pakatan government’s agenda to cut broadband prices by 25% by year-end.

• 1-month extension due to SST. While the proposals were initially supposed to be submitted before 31 August this year, telcos have requested for a 2-year extension. The minister said that the relief was given until 30 September 2018 due to the implementation of the Sales and Service Tax (SST) and the resolution of the prepaid reload card enforcement.

• Unifi was first to announce new plan this year…. TM’s Unifi was the first to announce its plans in July this year to raise the speed of its RM139/month package from 30Mbps to 300Mbps at RM0.46/Mbps together with the more affordable proposition at RM79/month (with a quota of 60GB) at 30Mbps for all households. Unifi is also raising its RM329/month plan from 100Mbps to 800Mbps at RM0.41/Mbps. At this stage, it appears that Unifi offers more attractive packages when its new plans come into effect. We are uncertain if Unifi has any plans to revise its packages further following the minister’s announcement.

• … but Maxis’ new Home fibre plan already started. Maxis’ new fibre broadband plans has already started on 13 September for both consumers and businesses with unlimited data quotas and offering speeds of up to 100Mbps at prices 36%–65% lower than previous similar plans beginning from 13 this month. For Maxis’ residential consumers, the price of the 100Mbps plan has been lowered from RM299/month to RM129/month at RM1.29/Mbps, and 30Mbps plan from RM139/month to RM89/month at RM2.97/Mbps. These packages include unlimited calls and iFlix access. For business customers, Maxis will lower the price of the 100Mbps plan from RM398/month to RM139/month at RM1.39/Mbps, and 30Mbps for RM99/month at RM3.30/Mbps.

• Only Time dotCom yet to launch new plans. Time dotcom, which had already launched its highly competitive plans since March 2016, has not changed its packages yet at this stage pending market reaction to the new Unifi launches. We note that Time’s niche offerings mainly targeting mass dwelling units in the Klang Valley, Penang and Johor segments currently faces limited competition from TM’s copper wire-based Streamyx connectivity in existing residential or commercial developments. Hence, for now, Time’s 100Mbps plan is maintained at RM149/month or RM1.49/Mbps and 300Mbps at RM189/month or RM0.63/Mbps. However, Time is now offering a 2-month promotion at a discount of RM20/month for its plans to new customers, which could be extended or increased to accommodate the government’s agenda.

• Affordability vs reinvestment needs. Higher demand from more affordable broadband prices will not be able to offset lower average revenue per user, which translates to substantial cuts in telco’s earnings prospects and lower reinvestment capability in rolling out fibre connectivity throughout the nation. We note that TM’s 1HFY18 normalised net profit has fallen by 40% YoY to RM261mil, which will mean that the group will not be able to pay dividends of at least RM700mil while the group’s rising net gearing could impair its credit rating. In our view, while the government appears committed in pursuing its agenda for more affordable fibre plans, we expect a more pragmatic approach to evolve in enabling nation-wide broadband connectivity.

• Maintain NEUTRAL call given the continued intense competition in both the mobile and fixed broadband markets. Hence, our only BUY for the sector is Axiata given its low EV/EBITDA of 5x, way below its 2-year average of 8x vs. Maxis' 12x and Digi’s 14x. Additionally, Axiata’s revenue growth prospects are improving for Celcom together with its overseas operations - XL, NCELL, Dialog and SMART.

Source: AmInvest Research - 18 Sept 2018