Highlights

• It was reported that disruptive Singapore ISP, MyRepublic plans to expand into Malaysia by end of 2015 or early 2016.

• It plans to follow the same strategy of undercutting incumbents with fiber services as adopted in its home market.

• It shook the city-state’s fixed line market in May 2014 by introducing a 1Gbps fibre service at SGD49 per month while rival was offering the same for SGD395.90. This has led all players to reduce prices down to SGD49-69.90 by Feb 2015.

• In Malaysia, MyRepublic plans to offer 100Mbps services at between RM60-70 per month. Comparatively, TM’s Streamyx 1Mbps bundled with voice is at RM116.60 per month while UniFi VIP5 triple-play plan is at RM155.94. Soon, TM will also be int roducing affordable basic broadband plan at RM38 per month for 1Mbps with 1GB data quota.

• Nonetheless, the would-be market entrant’s plan is dependent on Malaysian regulators creating an environment conducive to its disruptive model. Specifically, it is waiting for the government to require TM open up its networks on a wholesale basis, a process that could take place between now and 2018.

Comments

• MyRepublic is a start-up broadband provider backed by Indonesian telco Sunshine Network and French telecom billionaire Xavier Niel.

• Besides Singapore, Xavier -owned Iliad trading under the “Free” brand in France is a renowned and successful telco operating on a price leadership business model.

• Further liberalization or opening up HSBB is not a surprise to us as we have highlighted this may be achieved via access pricing regulation in our sector report titled “2015 Outlook” dated 19 January 2015.

• While it is in government’s best interest to raise broadband affordability, it may be too early to evaluate the threat and not discounting protectionism, ownership liberalization and more.

• If materialize, fixed players will be impacted the most, especially the incumbent, TM.

Catalysts

• Cost savings from partnerships.

• Managed services / outsourcing.

• Increased demand for wholesale bandwidth.

Risks

• Irrational competition, regulation of tariffs, FOREX.

Forecasts

• Maintained.

Rating

• Neutral

Positives

• Low beta, defensive, strong cash-generation and dividends should underpin the share prices.

Negatives

• Potential irrational competition, regulatory risks, unable to monetize data and dumb pipes.

Top Picks

• Axiata (BUY, TP: RM7.52) - Celcom’s recovery aft er prolonged IT transformation, full integration of XL-Axis and strong growth of OpCos in emerging markets.
• TdC (BUY, TP: RM6.78) – 4G LTE rollouts will continue to boost demand for node fiberization and exposure to regional data boom benefiting both global bandwidth sales and data centre businesses.

Source: Hong Leong Investment Bank Research - 10 Jun 2015