RHB Investment Bank (RHB) expects the tight competition in the mobile segment to persist, with the focus on fixed-mobile bundling and upselling 5G services. Uncertainties remain over the second 5G network (5GDN), which may have implications on capex and dividends.
RHB sets a NEUTRAL call on the telecommunications sector with Top Picks being Axiata Group and OCK Group.
RHB prefers the fixed line/integrated players (over mobile), given their structural growth catalysts and more resilient earnings. They flag Axiata Group as a laggard play on the earnings recovery and balance sheet deleveraging thesis.
Mobile service revenue (MSR) grew 1.2% YoY in 2023
RHB, in its Malaysia Sector Update note today (Mar 19) said Maxis saw the largest MSR gain. Industry mobile revenue (Big- 2) grew 1.1% QoQ in 4Q23 on seasonal factors and stronger postpaid growth (+1.8% QoQ).
For 2023, MSR ticked up 1.2% (Big-2, ie CelcomDigi (CDB) and Maxis) with the dip in prepaid (-0.5%) offset by stronger postpaid growth (+2.5%) – the latter supported by pre-to-post migration and bundling promotions.
Maxis notched a 0.9% gain in MSR share to 43.3% in 4Q23 (4Q22: 42.4%) at the expense of CDB whose share narrowed from 57.6% to 56.7% over the same period.
RHB expects the MSR momentum to remain subdued as weak consumer sentiment and inflationary pressures will crimp wallet share – reflected in the mobile operators’ tepid FY24F guidance of “low-single digit growth” in MSR.
Fixed line players still seeing resilient, superior growth
Aggregate fixed line earnings grew 77% YoY in 4Q23, helped by tax credits at TM. This was ahead of the 3% YoY growth in aggregate mobile earnings (Big-2).
For FY23, fixed line earnings increased 45% vs a 11% decline for mobile, with the latter impacted by accelerated depreciation and network impairment at CDB.
Regulatory noises have dissipated post new access agreements inked but not risks
According to the Communications Minister Fahmi Fadzil, the rollout of 5GDN will be delayed due to some legalities and the formation of the new Board at Digital Nasional (DNB).
The latter is a requisite for share subscription agreements by the four mobile network operators (MNOs) (inked on 1 Dec 2023) for which due diligence is still on-going, with condition precedents to be met. MNOs are required to invest in DNB (14% stake) before being allowed to partake in the second 5G consortium (commercial undertaking). Uncertainties on the 5GDN will continue to impact capex and dividend outlook, in our view.
How is 5G adoption?
Fahmi Fadzil said there were 10.1m 5G subs as at end January (adoption rate: 29.95%).
RHB understands that 4G users connected to 5G networks (even momentarily) are counted as “active” 5G subs, even if they are on 4G most of the time.
If the official mobile population is applied as the base (end-Dec 2023: 50.1m), 5G subs penetration would be 20% (lower, if 4G legacy subs are excluded).
The headline number include: i) Subs on legacy 4G plans trialling 5G on an opt-in basis (not pure 5G subs); and/or ii) subs that fall back on 4G connection whenever 5G coverage is not available.
RHB understands from the regulator that 4G users (currently 90% of overall mobile subs) connected to 5G networks (even momentarily) are counted as “active” 5G subs, even if they are on 4G most of the time.
If the official mobile population base is applied (end-Dec 2023: 50.1m), RHB estimates underlying 5G penetration at c. 20% (lower, if 4G legacy subs are excluded).
For clarity, 5G subs are defined as “at most 5G” by the regulator, with the latest 4Q23 number standing at 8.3m.
RHB expects the 5G population base to continue growing, supported by: i) New 5G plans in the market which offer larger data quotas, ii) the influx of more lower-priced 5G handsets, and iii) the expanded coverage footprint. With consumer/retail use cases still lacking, 5G monetisation would remain a challenge for the industry in the medium term
Ookla’s 4Q23 Speedtest Intelligence Report puts Malaysia’s 5G Availability at 27%, vs Singapore’s 53.7% and Thailand’s 45.5%, despite outperforming on median download speeds.
Overall, RHB expects the 5G base to continue growing, supported by new 5G plans in the market and the influx of lower-priced handsets.
With consumer/retail use cases still lacking, 5G monetisation would remain a challenge for the industry in the medium-term, in RHB’s view.
Key risks are competition, weaker-than-expected earnings and negative regulatory developments.
