• Top Picks: Time dotCom (TDC) and OCK Group. Most telcos delivered in line results for the June quarter, with Axiata Group (Axiata) being the sole loser. We see no let-up in mobile competition, with policy-induced acquisitions and pre-to-post conversion activities – the latter helping to mitigate ARPU pressure. The inking of new access agreements may compel access seekers to up the ante on fibre broadband offerings, but the impact is likely manageable, with the converged value propositions. Maintain sector NEUTRAL, with a preference for fixed line plays.

• Axiata the outlier, TDC’s capital management surprise. Axiata was, again, the underperformer in the June reporting season while the earnings of four other telcos and a telco infrastructure firm were in line. Axiata’s results miss was on elevated depreciation and financing costs, and disappointments at edotco Group and Linknet. Both CelcomDigi (CDB) and Maxis delivered stronger earnings QoQ, but the former was still hit by accelerated depreciation from the on-going network integration. TDC’s core earnings contracted by 11% QoQ post selling its data centre business in April, with the AIMS Group re-classified as an associate (previously a wholly owned subsidiary). Overall core sector mobile earnings rose by c.6% QoQ in 2Q23 (1H23: -17% YTD) vs 1Q23’s -2.1% QoQ, while fixed line core earnings advanced 52% QoQ (+10% QoQ, if normalised for tax losses). To the market’s surprise, TDC declared another 16.25sen DPS, adding to the recent 54.4sen special DPS paid in May. On key forecast changes, Axiata’s FY23-25F earnings were slashed by 22-39% after imputing weaker contributions for Linknet and edotCo. Our forecasts for the other mobile operators were largely unchanged.

• Competition still tight, some ARPU uplift from pre-to-post conversion. Industry mobile service revenue (big-2 telcos) ticked up by a marginal 0.6% YoY in 2Q23 (1H23: +1.7% YoY), spearheaded by the postpaid segment (+2.3% YoY) while the prepaid segment narrowed further (-1.6% YoY) (1H23: flat). We expect competition to remain tight, given: i) The policy-induced acquisition campaigns (Pakej 5G Rahmah/B40); ii) the upselling of entry-level postpaid plans; and iii) cross-selling of home fibre bundles. Note that the telcos were already locked-in tactical price/data aggression since the start of the year, with benchmark per GB data prices falling under MYR1. Maxis’ launch of new 5G plans on 15 Aug further pushed the envelope on data allowances, with 5G subs gaining up to 2.5x more data for a 6-11% increase in monthly subscriptions vs previous 4G/LTE plans.

• New access agreements (MSAP). The signing of new commercial wholesale agreements with access seekers may be done soon, paving the way for new retail fibre broadband prices. Concerns over renewed retail price competition from lower access cost have been a key overhang. Based on the 28 Jul reference access offer (RAO) document, wholesale access prices (Layer 3 Service Gateway) for the incumbent fixed line operator are 9-60% lower across tiers vs the previous RAO (2018) with a mean reduction of 37%. The difference in cost per Mbps between the lowest and highest speed tier is 68% (2018: 55%). The rate tops out at MYR2.55/Mbps/mth for 9Tbps, and above under the current RAO vs MYR6.31 for 3Tbps and above in the previous RAO.

Source: RHB Securities Research - 11 Sept 2023