With network improvements, the research house said Digi aims to drive its postpaid revenue by offering easy entry plans to drive pre-to-postpaid conversions.
KUALA LUMPUR: CIMB Equities Research is neutral on the Malaysian telco sector and switched its telco top pick to Digi from Axiata, which it downgraded to Hold after a 24% increase in its share price in the past three months.
It pointed out on Friday Malaysian telcos trade at a 24% premium over the Asean average 2019F enterprise value/ operating free cashflow (EV/OpFCF) of 14.5 times, with decent 2018-19F yields of 2.7%-3.5%.
Downside risks: spectrum auctions for 700MHz/2600MHz with higher-than-expected final prices and more intense competition. An upside risk is value creation from M&As.
CIMB Research said the postpaid market was just slightly more active in Dec-Feb, in terms of new product launches.
Overall competition, especially in the lower-average revenue per user (Arpu) segment, remains tight with some competitively priced offers still kept on the market (e.g. U Mobile’s GX50) but did not materially deteriorate compared to the preceding three months.
U Mobile introduced its new P139 plan to target higher-end customers. TM added four new Unifi Mobile postpaid plans. Meanwhile, Yes launched several fixed-speed unlimited data plans.
“The prepaid market was relatively active in Dec 2018-Feb 2019, led by MVNOs and smaller operators. U Mobile also continues to market its RM30 a month GX30 (3 Mpbs speed cap) unlimited prepaid plan (launched in end-June 2018).
“However, there were no major new moves from the Big Four operators, indicating that the wider market competition may not have worsened substantially. In the international direct dial (IDD) segment, there were no changes in headline tariffs,” it said.
CIMB Research said mobile industry service revenue was largely flat qoq in 4Q18 (-1.1% yoy).
Prepaid continued to fall in 4Q18 (-1.0% qoq, -7.7% yoy) on lower subs and keen competition, offsetting postpaid gains (+3.2% qoq, +9.3% yoy).
Maxis gained another 0.4% pt qoq in revenue market share (RMS) to 39.2% but suffered a sharp 7.0% pts qoq erosion in its Ebitda market share to 38.9% due to a spike in opex. In the fixed line business, Telekom Malaysia's revenue was down 3.5% yoy in 4Q18 (though up 4.9% qoq due to seasonality).
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