• Out of the five companies under our coverage, four aligned with our expectations and only one came above our estimates

• The enhanced performance was primarily driven by improved service revenue alongside decent demand for data

• We foresee potential for MNOs to capitalise on 5G monetisation through attractive packages, ultimately leading to higher ARPU

• Maintain an OVERWEIGHT call on Telecommunications sector with a BUY call on TM (BUY, TP: RM7.06 and TIME (BUY, TP: RM6.09)

Decent performance

The recent corporate earnings season delivered favourable outcomes for telecommunications companies. Out of the five companies under our coverage, four met our expectations while one exceeded our projections. The improved performance was mainly attributed by better service revenue as well as solid demand for data. The sector's top-line for FY23 expanded by 17.1% YoY, largely propelled by significant contributions from CDB, which experienced an 87.2% YoY growth. This growth was mainly attributed to CDB's substantial increase in total subscribers, adding 466K new subscribers in FY23, driven by heightened adoption of enhanced product offerings. Axiata also saw a 9.9% YoY growth, primarily due to improved contributions from all operating components except for its digital businesses. It's noteworthy that all tracked telco companies reported enhanced earnings in FY23, except for Axiata, which recorded a profit of RM364mn, marking a -77.0% YoY decline in FY23. This decline was influenced by Ncell and EDOTCO Myanmar asset impairments, along with increased net finance costs and a reduced share of CelcomDigi's results compared to Celcom's contribution as a subsidiary in the previous year.

Anticipate a 5G impact in the 2H24

The total mobile subscriber count has experienced a positive upswing. In terms of subscriber expansion, most of the companies under our coverage have demonstrated improvements, except for Axiata, which experienced a decline due to the deconsolidation of Celcom. On the fixed player front, TM, particularly Unifi fixed broadband, saw a 3.1% growth to 3.1mn subscribers driven by enhanced convergence campaigns and aggressive retention activities. As of the end of February 2024, Malaysia has achieved an adoption rate of approximately 30%. Looking ahead, we anticipate a surge in momentum in 5G development, resulting in a higher adoption rate. Consequently, we expect MNO to witness improved contributions from 5G-related products by the 2H24. We foresee potential for MNOs to capitalize on 5G monetization through attractive packages, ultimately leading to higher ARPU. Once the implementation of the market-driven dual-network 5G model becomes more concrete, we believe this will serve as a significant catalyst for sector re-rating.

Overweight on the Sector

We maintain an OVERWEIGHT stance on Telecommunications sector with a BUY call on (i) TM (BUY, TP RM7.06) and (ii) TIME (BUY, RM6.09).

Source: BIMB Securities Research - 7 Mar 2024