We maintain OVERWEIGHT on the sector. For the mobile segment, we are cautiously optimistic on the implementation of the new 5G dual network (DN) model. This is underpinned by: (i) a more accommodative regulatory environment following the withdrawal of government intervention, (ii) healthy competition between two networks will result in optimal wholesale and retail prices, and (iii) enhanced network roll-out efficiencies for the second 5G network. Therefore, we are hopeful that earnings and dividends for mobile players remain intact after DN takes effect. Meanwhile, in the case of fixed players, we believe that sentiment has improved after revised tariffs for wholesale and retail services were unveiled. Hence, this removes earnings uncertainty and quells earlier concerns of irrational retail competition. Our sector top picks comprise CDB (OP; TP: RM5.34) and TM (OP; TP: RM6.76).

1. Mobile

Generally weak ARPU trends… Except for Celcom’s prepaid segment, YoY ARPU was weaker across the board for all segments in 3QCY23, particularly for Digi. For the latter, blended ARPU declined by 8% YoY, which was attributed to weakness at the postpaid segment. This emanates from: (i) dip in interconnect rates (effective: Mar 2023), and (ii) slower traction for ondemand offerings. Hence, this had further exacerbated the decline in CDB’s postpaid ARPU, which was as high as RM71 in 1QFY22 before the start of its sequential rout. Meanwhile, in the case of MAXIS (OP; TP: RM5.30), we believe that weaker postpaid ARPU (-7% YoY) was due to drag from new users on its affordable entry level Hotlink Postpaid plans. This was in-line with its strategy to upsell products and upgrades its low margin prepaid subscriber base. On the bright side, sequential prepaid ARPUs for MAXIS remained resilient in spite of the introduction of affordable MADANI prepaid packages in 3QCY23. This was attributed to effective ARPU management via personalised promotions on Hotlink MU app.

…but strong YoY subscriber net adds. On a rosier note, there was a 3% YoY subscriber base expansion for the top three mobile players in 3QCY23. For CDB, this emanates from total subscriber net adds of 636k on the back of sustained traction across the board. However, QoQ net adds for the prepaid segment slowed down to 22k in 3QFY23 after averaging an impressive 140k in 1HCY23. Whereas for MAXIS, as mentioned above, the YoY expansion in subscribers (+257K) was underpinned by sustained momentum in its strategy to upsell and offer fixed-mobile convergence. On the back of this, net adds for postpaid (+262k) and home connectivity (+90k) more than surpassed net churn for prepaid (-146k) and wireless broadband (-12k).

Source: Kenanga Research - 29 Jan 2024