Technically, there was a sequential deterioration in earnings delivery by the sector in the recently concluded quarter one calendar year 2023 reporting season with 60%/40% coming in within/below Kenanga Research (Kenanga)’s forecasts versus 60%/40% coming in above/below in the preceding reporting quarter.
“MAXIS, OCK and TM performed within expectations but CDB and AXIATA were let down by higher-than-unexpected depreciation charges due to the reduction in the accounting useful life for CDB’s telco assets,” said Kenanga in the recent Sector Update Report.
The telcos as a whole saw resilient top line growth in quarter one calendar year 2023, driven by the reopening of the domestic and regional economies as life returned to normalcy for consumers while business accelerated digitalisation for sustainable growth.
Subscribers’ growth saw improvements year-on-year both regionally and domestically. AXIATA’s subscription was boosted by DIALOG (Sri Lanka) and Robi (Bangladesh) growing at 7% and 3%, respectively, despite inflationary pressures.
“Local subscribers for CDB and MAXIS saw 3% and 4% uptick, respectively, with CDB‘s subscriptions underpinned by Digi at plus 9%,” said Kenanga.
Domestic market average revenue per unit remained resilient year-on-year, both postpaid and prepaid. AXIATA’s blended average revenue per unit showed improvement year-on-year, with the exception of its Nepal operation, led by Robi.
In the broadband subscription, TM is still ahead of the pack in terms of market share followed by MAXIS, but MAXIS‘s broadband subscribers saw a slight dent year-on-year.
On a brighter note, broadband average revenue per unit was still robust but might suffer erosion once the revised mandatory standard on access pricing is implemented.
“We remain positive on the sector’s outlook premised on resilient demand from both consumers and business, locally and regionally. Players like CDB looks set to benefit from the return of migrant workers, wider coverage and larger Point of Presence,” said Kenanga.
Demand for local mobile and broadband will be supported by wider and efficient coverage with the completion of Phase 1 of the Jendela initiative. According to the Malaysian Communication And Multimedia Commission, almost 97% of populated areas have access to 4G network with average mobile broadband speed increased to 116 megabyte per second.
The promise of a 80% COPA and JENDELA 2 will accelerate demand further with players like AXIATA and OCK benefitting from the
construction, upgrading and fiberization of towers.
“We reiterate our Overweight call for the sector as we believe there is still valuation upside following the change in the sector’s
5G model from SWN to more market-driven DN,” said Kenanga.
Kenanga’s top picks are:
1/ CDB, as it well entrenched in the public sector and migrant worker space, dominating the mobile market share at 43% and dwarfing other multinational organisation. Also, its competitive pricing and attractive bundling can attract migrants and domestic customers.
This is compounded by the roll-out of 5G that will likely further boost its subscriber base, given the absence of MAXIS at this early roll-out stage.
2/ MAXIS, as it has an expanded 4G coverage, not forgetting the impending 5G roll-out where its interim access costs would likely be lower than peers. Also note the full-year impact of the reopening of the economy, and MAXIS’ brand loyalty from its premium customers.
3/ OCK, as it has tremendous growth opportunities in the telco infrastructure space both at home and abroad especially in the
under-served areas, being well positioned to benefit from Jendela 2 and 5G roll-out domestically and other ASEAN markets.
Further on, it has earnings stability and visibility with about 53% of its revenue being recurring from telco tower maintenance and telco tower leasing. Lastly, OCK’s potential expansion to other new markets in the region needs to be taken into account, for example, Indochina, Kalimantan and Philippines.
