Investment Highlights

• Celcom offers additional privileges during MCO. Axiata’s wholly-owned Celcom Axiata (Celcom) has offered special privileges for certain popular applications and payment terms during the Movement Control Order (MCO) period beginning yesterday until 31 March 2020. As many Malaysians would be working from home in tandem with the government’s efforts to maintain social distance, Celcom extends its support via digital online services, together with special relief initiatives for its customers. These include:

• Free unlimited Whatsapp (chat, voice & video call) access for all postpaid and Xpax prepaid customers 8am–6pm daily;

• Free unlimited access to Microsoft Office 365 applications, for all postpaid and Xpax prepaid customers 8am–6pm daily;

• Doubling to 6 hours from 3 hours of unlimited internet access via Xpax Ultra Hour pass, at only RM2 8am–6pm daily;

• Extended 7-day bill payment period for all Celcom postpaid customers from their current due date;

• 10% cashback for Celcom Xpax Prepaid Reloads of RM10 and above via the Celcom Life App until 30 June 2020;

• Cashback for unused internet quota of Celcom MEGA postpaid users until 30 June 2020.

• Double U Mobile hotspot data. U Mobile has doubled hotspot data quota for selected prepaid and postpaid customers starting yesterday until 31 March 2020. Postpaid GX50, GX68, Unlimited HERO P99 and Unlimited HERO P139 plans together with the prepaid GX38 package will enjoy double hotspot data quota for free starting from 19 March 2020. Unlimited HERO P139 and P99 customers may also add a S20 data-only share line for RM20 monthly to share the double hotspot quota on their devices. Meanwhile, prepaid customers can renew or activate the GX38 plan between 19 March and 31 March 2020 to double hotspot data for 30 days.

• No significant impact to earnings. Given that the offer is valid for only a fortnight, we do not expect substantive customers to switch to better alternatives during the MCO when most mobile service centres are closed. As such, we do not expect any significant impact to the cellular operators’ (celco) forecasts even though these initiatives promote corporate social responsibility while reinforcing positive brand perceptions. Given the pricing structures of fibre and 4G packages, the sales revenue of these operators will only increase if significant numbers of existing or new subscribers switch to higher value packages. In our view, this is less probable as mobile users would more likely deploy home/office wifi connected to much faster fibre broadband which are mostly based on unlimited data plans. Hence, we maintain the forecasts of the telco stocks under our coverage. Recall that the government has imposed a 14-day MCO nationwide 18–31 March to curb the spread of Covid-19 infection in Malaysia. This means all government and private sector premises will cease operating, with the exception of premises involved in the provision of essential services such as water, electricity, energy, telecommunications, post, transportation, irrigation, oil, gas, fuel and lubricants, broadcasting, finance, banking, health, pharmacies, fire and rescue, prisons, ports, airports, security, defence, public cleansing, retail and food supply.

• Celco service revenues are still rising, albeit at a slow but steady pace from postpaid accretions. YoY, celcos’ 4Q2019 service revenue slid 1% due to a 10% contraction from Celcom’s declining subscriber base, partly offset by Maxis’ commendable growth of 6%. However, on a QoQ comparison, their service revenues rose 8.7% to RM6bil on postpaid segment growth and seasonally higher device sales, largely driven by a sharp increase of 13% QoQ from Maxis. This was further supported by blended average revenue per user (ARPU) rising slightly RM1/month QoQ to RM48 mainly from the increase in postpaid subscribers.

• We maintain our OVERWEIGHT recommendation on the sector given the attractive valuations of Maxis and Digi, following the recent selldown over the past week. We also retain our BUY on Axiata, given its low EV/EBITDA valuations and rising prospects for monetisation of its multiple businesses. TM remains a HOLD against the backdrop of governmenttargeted fiberised ARPU reductions under the National Fiberisation and Connectivity Plan (NFCP).

• Sector can be de-rated on resumption of revenue declines against the backdrop of escalated mobile price war and looming sharp drops in fixed broadband prices this year, driven by NFCP prerogatives. We are also cautious on possibilities of higher-than-expected increase in operating and capital cost requirements as operators need to further upgrade their network infrastructure for 5G rollouts.

Source: AmInvest Research - 20 Mar 2020