Investment Highlights

• New Celcom wireless broadband. Axiata’s wholly-owned Celcom has launched its Home Wireless broadband plans, which come with up to 1TB of internet, with average broadband speeds of 30Mbps. Inclusive of GST, Celcom now offers Home Wireless Gold at RM74.20/month (25GB + 40 GB Walla), Home Wireless Gold Plus at RM106/month (50GB + 100GB Walla) and Home Wireless Platinum at RM159/month (150GB + 1TB Walla).

• As a comparison, Maxis offers 20GB of wireless broadband at RM88/month while Digi offers options at RM45 for 8GB, RM65/month for 20GB, RM105/month for 40GB. U Mobile offers the most affordable option at RM26/month for 2.6GB data and RM36/month for 7.5GB data, with even the lowest price point offering unlimited Waze, Whatsapp and WeChat.

• Among better options currently…. At the RM60-90/month wireless broadband range, Celcom currently offers the best price/GB option at RM2.97/GB vs. Digi’s 3.25/GB and Maxis’ 4.4/GB. However, although there’s no installation required, the wireless modem will only work at your registered address. Moreover, unlike fibre which offers unlimited data usage, the quota for most wireless broadband plans is usually fixed and may not be enough for video streaming.

• … but minimal impact likely. Hence, we do not expect these new wireless broadband plans to make a significant change in the sector’s subscriber trajectory given the more attractive home fibre options amid SIM consolidation as handheld devices can be turned into individual hotspots. Maxis’ wireless broadband subscibers have fallen by 14% YoY or 27K to 161K as at 31 March 2018 while its fixed fibre broadband has risen by 20% YoY or 31K to 184K.

• No easing in mobile data pricing intensity. We expect further repackaging formulations by the industry against the backdrop of U Mobile’s Hero P78 plan, which offers unlimited data with speeds up to 5Mbps for RM78/month and P99 for unlimited data with no speed caps at RM99/month. In our view, near-to-medium-term revenue growth outlook remains weak given the likelihood of further intensification in the mobile wars, with Digi and Celcom likely to raise the ante against both U Mobile’s plan and unifi mobile’s unlimited mobile data/voice/SMS pricing plans, currently priced at RM79/month for the first SIM, RM69/month-RM49/month for second to fourth SIM. As U Mobile and unifi mobile wrestle for new customers in the unlimited mobile data arena, prospects will deteriorate for incremental service revenue accretions in the sector.

• Competition now escalates on fixed broadband. For its existing customers, Maxis has recently lowered the price of its home fibre services by RM20/month to RM119/month for its 10Mbps option which offers unlimited voice calls to all mobile and landlines as one of its limited time offers. As a comparison, Telekom Malaysia’s has reintroduced its UniFi 10Mbps at RM129/month although Time dotCom still offers the best value for money with 100Mbps at RM149/month. Recall during the 2017 Budget announcement in 2016, the prime minister had indicated the government's intentions to double fixed broadband speed and halve its prices within 2 years. Hence, we expect further pricing revisions to this segment this year.

• Rising need for consolidation. As U Mobile and unifi mobile wrestle for new customers in the unlimited mobile data arena, we remain convinced that sector consolidation remains the logical route, which is likely to be spearheaded by the potential re-merger of Axiata and TM. Main synergistic benefits from an Axiata-TM merger are the complementary suite of services which Axiata's mobile services can integrate into TM's fixed line operations to draw further mobile market share from the other players Maxis, Digi and U Mobile.

• Cost efficiency to drive synergies. The more immediate earnings impact from an Axiata-TM merger will be cost efficiencies from the reduction in redundancies for head office expenses, network operating centres, marketing costs and procurement management. Assuming a 10% cost reduction would mean substantial annual savings of RM2.1bil, 3% of the combined group's market capitalisation.

• Maintain NEUTRAL call given the continued intense competition in the celco segment while the fixed broadband segment could face rising pressure from the government to cut tariffs to drive a knowledge- and IT-driven economy. Our top BUYs remain Axiata and TM due to the game-changing merger possibility which will significantly enhance their earnings and market share trajectory while Maxis and Digi are HOLDs due to the resistance in gaining traction in revenue growth amid potential loss in competitive advantage under a re-energised Axiata-TM brand.

Source: AmInvest Research - 27 Apr 2018