Investment Highlights

• New affordable plans for youths soon. Communications and Multimedia Minister Tan Sri Annuar Musa has announced the “Pakej Remaja Keluarga Malaysia” which provides affordable mobile data for youths and students at RM30 for 20GB of data with a 3-month validity. The data for this prepaid package can be utilised for anything including downloading videos or online gaming. Open to youths and students below 21 years old as well as students aged 21 and above, registration with IC or student card verification could start from mid-October 2021.

• Additional 90GB data for productivity. Additionally, users are also given free 1GB data daily which provides an additional 90GB for 3 months which is available for productivity use, similar to the current plans offered by telcos. Users will also get unlimited basic internet, which could include throttled basic internet above data quota.

• Upgrades to 4G VoLTE phones. The ministry has also announced a device package under the “Pakej Peranti Keluarga Malaysia” to make new 4G devices with VoLTE available for families with a monthly commitment of RM40/month. The device will be tied to either a 12-month or 24-month contract duration depending on the device and plans being offered. The device packages will also include free 1GB of data daily for productivity use. Each eligible individual can sign up for a maximum of 2 packages with the same IC number. The data and device “Keluarga Malaysia” packages will be available for a period of 6 months from 15 October 2021 until 15 April 2022.

• No impact to celcos’ operating costs. While the ministry has not revealed the list of participating telcos, we expect all the cellular operators (celco) to begin announcing their own propositions soon. Nevertheless, we do not expect this new scheme to raise the operating expenses of the cellular operators given that more affordable plans are mostly opportunity costs for the higher revenue which celcos can secure under their original plans.

• No changes to forecasts at this juncture. Even so, we do not expect significant impact to the celcos’ average revenue per user (ARPU) or revenue trajectory as the total 20GB of data over 3 months can be easily utilised with Digi indicating that 2QFY2021 average data usage is at least 3x higher at 21GB/month. Also, the packages could expire by April next year while users with higher data consumption could naturally upgrade to higher priced plans upon reaching their quotas. As such, we do not make any changes to telco’s forecasts at this juncture.

• Rising competition in bundled mobile and fibre propositions. Joining the other celcos, U Mobile has recently launched plans to bundle with fibre in Melaka, Cyberjaya, Perak and Kedah starting at attractive discounted rates of RM64.50/month for speeds of 100Mbps. In our view, U Mobile's RM30 prepaid package, which offers unlimited data and 6GB hotspot with speed cap of 6Mbps together with RM5/month top-up for unlimited calls, remains the frontline in the mobile wars. In the fibre broadband market, TM’s 2Q2021 unifi subscriber growth has reached a record 188K – 8.5x Maxis’ 22K – from aggressive promotional campaigns and focused plans to expand distribution networks and direct connectivity to homes.

• MyDigital boost to TM. The government’s MyDigital initiative involves investing RM15bil over 10 years via a wholly government-owned special purpose vehicle (SPV) called Digital Nasional, which will own, execute and manage 5G spectrum and infrastructure. This is envisaged to allow licensed telcos with equal access to the infrastructure to roll out 5G services nationwide, expected to begin in stages by the end of this year. Hence, we view this as being neutral to cellular operators who will not be burdened by the 5G capex. However, being the owner of the nationwide High-Speed Broadband fiberised network, we believe that this is positive for TM and to a lesser extent, Time dotCom, in providing the critical backhaul backbone system for 5G networks. The government has also given conditional approvals for Microsoft, Google, Amazon and TM to build and manage hyperscale data centres as well as provide hybrid cloud services, valued between RM12bil and RM15bil over the next 5 years. While this will benefit TM One’s data centre operations, we expect TM to leverage its fixed play dominance provided by its national fibre-optic network and extensive partnerships to support the building of third-party data centres, thus partly alleviating high capex requirements.

• Maintain OVERWEIGHT rating on the sector with BUY call for TM, which has shown significant cost improvements and poised under brighter prospects under the government’s MyDigital initiatives. Maxis remains a HOLD at a fair CYF22 EV/EBITDA of 12x, at parity to its 3-year average of 12x.

Source: AmInvest Research - 17 Sept 2021