Maxis added 442k prepaid subs in 2Q20 (+6.0% qoq) and has overtaken Digi as the largest prepaid player by number of subs. We believe Maxis’ strong prepaid subs gain was due to its good marketing efforts and the timely launch of the Hotlink Prepaid Unlimited on 4th June that capture strong pent-up demand. In the postpaid segment, all three celllcos reported lower postpaid subs (qoq) in 2Q20, putting an end to Maxis’ 14 consecutive quarters of subs gain (4Q16-1Q20). Overall, all three cellcos registered lower 2Q20 service revenue (-2.2% to -6.1% qoq) due to lower ARPUs (Maxis, Digi, Celcom) and a decline in the numbers of subs (Digi). Moving into 2H20 / 2021, we expect competition in the mobile segment to remain elevated as the players are competing for higher revenue share in a stagnant market.
In the fixed-broadband segment, competition is relatively moderate due to the robust underlying demand and the strong incumbent (TM) which has an established fibre network. Digi launched the Digi Internet Freedom home broadband services in Jul20, offering 100Mbps of fibre broadband for RM130 per month, comparable to TM and Maxis’ RM129/month. Looking ahead, we expect the players to focus on product bundling and compete on quality of services, instead of price cutting. Elsewhere, we observe that high-speed fixed broadband (≥ 100 Mbps) continues to gain popularity in spite of the 45% price premium to the 30 Mbps packages, indicating that consumers are willing to pay for higher speed internet.
Maintain Neutral. Notwithstanding the telco sector’s weak 2020E earnings outlook (due to weak economic conditions arising from Covid-19) and the unexciting earnings trajectory for 2021E, we expect ample market liquidity and low funding costs to support the telcos’ valuations. For exposure, we prefer the dominant fixed broadband player to the mobile operators for the growing demand for high-speed fixed broadband and relatively stable market condition. We like TM for its extensive fibre infrastructure, strong footing in the fixed broadband market and attractive valuation of 20.5x 2021E PER (a discount to peers’ 24-38x and below its 8-year average PER of 24x).
Source: Affin Hwang Research - 10 Sept 2020
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TMCreated by kltrader | Jan 03, 2023
Created by kltrader | Sep 30, 2022