Malaysian telcos had a typical seasonal start to the year, with continued weight on ARPUs from inflationary pressures and the tight competition. Upselling of mobile fibre bundles remains a key focus, with Telekom Malaysia (TM) unveiling its latest converged proposition, UniVerse.
RHB Investment Bank (RHB, said today (June 20) they continue to favour the fixed/integrated plays, on structural catalysts and the stronger earnings outlook.
RHB maintain NEUTRAL on sector with Top Picks being Axiata Group and OCK Group. Competition, earnings misses and regulatory setbacks are key risks.
Broadly, telcos delivered in-line results for the March quarter, with a consensus beat from Axiata while CelcomDigi (CDB) fell short.
The quarter was characterised by seasonality, with industry mobile service revenue (MSR) down 1.1% QoQ. MSR rose by 0.1% YoY, with Maxis notching further revenue market share (RMS) gains at CDB’s expense, on solid postpaid growth (+6% YoY).
Maxis’ EBITDA market share (EMS) also grew 2% pts QoQ to 41.4%, at the expense of CDB whose EMS eased further to 58.6%. Industry blended ARPUs stayed under pressure (-4% YoY) on inflationary headwinds and tight competition.
There is no change to the telcos’ 2024 guidance ie low single-digit service revenue growth and flat EBITDA/EBIT.
Aggregate fixed line revenue and core earnings (TM and Time dotCom) grew 2% and 22% YoY in 1Q24, with the normalisation of tax rates at TM. TM also made accounting adjustments on the recognition of government grants (retrospectively adjusted) with a neutral EBIT impact.
Meanwhile, aggregate core mobile earnings (Maxis and CDB) grew 14% YoY on cost discipline.
Axiata’s 1Q24 core PATAMI more than doubled YoY on strong double-digit EBITDA growth (+16% YoY), with its EBITDA margin at a new high. This was led by growth across most mobile assets with the key standouts being XL Axiata (EXCL IJ, BUY, TP: IDR3170), Smart and edotCo.
CDB booked MYR139m in severance cost in 1Q24 involving 600 of its staff. This led to a 12% QoQ decline in EBITDA, with overall headcount lowered to 3500- 3700. It expects MYR80-90m in cost savings from the exercise by year-end, forming part of the MYR700m in gross synergies guided for FY24.
The telco’s network integration is nearing the half way mark (>7,200 sites modernised) with the target to complete this by 2025. CDB has also cut the number of key dealers, from 16 to 8 following the revamp of its distribution channels.
5G clarity soon?
In a 7 Jun press statement, Maxis reaffirmed its support and commitment for the transition to a second 5G network, and said it is ready to complete the share subscription agreement (SSA) process ahead of time.
The Government has set a 21 Jun deadline for the five telcos to finalise the SSAs for a combined 70% stake in Digital Nasional (DNB). A stake in DNB would pave the way for the rollout of a second 5G network, but this would take time and access seekers will still need to ride on DNB’s network in the medium term.
