Investment Highlights

• Free 1GB data for 24 hours. The Malaysian Communications and Multimedia Commission (MCMC) has announced that the validity of the free 1GB data, which was announced under the government’s National Economic Recovery Plan (Penjana), will be extended to 24 hours from a restricted period (8am to 6pm) beginning yesterday until 31 December 2020. As such, the major celcos (cellular operators) comprising Celcom, Digi, Maxis, TM and U Mobile have jointly announced the extension of the validity to all active postpaid and prepaid customers.

• Still restricted in usage. This 1GB internet extension is still restricted to important educational and Covid-19-related apps and websites such as MySejahtera, MyTrace, health-related information and government websites, and free calls to the Crisis Preparedness and Response Centre (CPRC) hotline. To redeem the free data, users can activate the usage from the selfcare apps. The free 1GB data cannot be utilised for gaming, music, video and social media applications such as PUBG Mobile, Spotify, YouTube and Telegram. For such applications, users will have to utilise their own existing data plan.

• Negligible impact. In our view, this is simply an extension of the free 1GB internet access that celcos have already been offering to their subscribers since 1 April during the movement control order until 9 June 2020. As the usage of this free data quota is restricted to selected websites and applications, we do not expect any substantive impact to the celco sector's average revenue per user (ARPU) or operational costs. Fibre broadband providers such as TM's Unifi and Time dotcom, which mostly do not impose data restrictions, could marginally benefit from the increased backhaul services for celcos catering to these selected websites and applications.
  
  Instead, operators may hope to leverage the opportunity to rebrand and promote their services on their higher priced packages as customers accustom to higher data usage after the expiry on 31 December 2020.

• Escalating celco wars with unlimited data plans. Following the launch of unlimited prepaid passes at RM35/month with speed caps at 3Mbps from Maxis and Celcom earlier in the month, we expect the incumbents to introduce unlimited data plans for their postpaid segment as well; otherwise its existing customers could migrate to the lower priced prepaid segment. Currently, the sector’s 1Q2020 postpaid average revenue per user (ARPU) of RM78/month is 2.7x prepaid’s RM31/month.
  
  For now, U Mobile and Digi are the only celcos offering unlimited postpaid data plans. U Mobile’s GX50 postpaid plan offers unlimited data and calls plus 5GB of hotspot sharing at a discounted RM40/month (from RM50/month). Digi offers its Infinite online plan with unlimited data at speeds up to 10Mbps and calls at RM100/month while Unifi Mobile is priced at RM99/month.
  
  Digi’s newly launched prepaid package offers 3GB of data and unlimited social media for only RM15/month while Unifi Bebas offers 4GB data at RM30 with no validity period, pricing RM7/hour for voice calls. Meanwhile, Maxis’ lowest postpaid plan is currently RM98/month with unlimited calls and data quota of 40GB while Celcom offers unlimited calls at RM80/month with data quota of 30GB. As such, we await postpaid packages being launched by Maxis and Celcom over the next few months in tandem with the escalating cellular wars which will constrain any increase in average revenue per user.

• Total subscriber trajectory continued its downward trend from prepaid attrition after a brief uptick in 2Q2019 amid the still intense mobile competition. Mobile subscribers decreased by 580K QoQ as prepaid declines of 704K were only able to be partially offset by postpaid additions of 124K. Only Maxis registered a 91K net increase while Celcom declined by 390K and Digi by 281K.

• Maxis remains the leading celco. Since 1Q2016, Digi has held the leading subscriber market share due to its strength in the prepaid segment, underpinned by the migrant population. However, Maxis’ postpaid subscriber focus and convergence strategy with its fibre broadband services appear to be working out better than Digi and Celcom’s. In 1Q2020, Maxis’ subscriber market share of 37.2% has finally overtaken Digi’s 36.4% while Celcom remained a distant third at 26.4%.
  
  Additionally, Maxis remains the leader in the postpaid segment with an ARPU and subscriber base which are higher by 23% and 24% respectively compared to Digi’s. While the postpaid segment accounts for 34% of Maxis’ subscriber base, it makes up 58% of the group’s 1QFY20 group service revenue. As a comparison, Digi’s postpaid segment accounts for 28% and 47% of its subscriber base and group service revenue respectively in 1QFY20.

• Maintain NEUTRAL outlook on the sector given the unmitigated mobile competition amid escalating capex requirements against the backdrop of the National Fiberisation and Connectivity Plan (NFCP) agenda to improve national connectivity and affordability. Our only BUY currently is Axiata, given its low EV/EBITDA valuations and rising prospects for monetisation of its multiple businesses

Source: AmInvest Research - 2 Jul 2020