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Thursday, October 20, 2016

Malaysian telecoms sector – Good start to 3Q, BUT…

Malaysian telecoms sector – Good start to 3Q, BUT…

Author: kltrader   |   Publish date: Thu, 20 Oct 2016, 09:18 AM 

Yesterday, Maxis and DiGi reported their financial results for the third quarter 2016 (3Q16), with both telecom companies reporting decent 3Q16 profits despite marginal falls in revenue. DiGi’s 3Q16 net profit rose 10.5% year-on-year (YoY), while Maxis posted an increase of 19.8% in its net profit YoY.

Following this, Macquarie Equities Research (MQ Research) released a report discussing the strategies that contributed to the improved results. In the report, MQ Research also wrote about the scaling back in the “Gig War” and they maintained their preference for Telekom Malaysia and Time dotCom in the Malaysian telecoms market. Read more for excerpts from the report titled “Good start to 3Q, BUT…”

  • Maxis and DiGi's management teams hosted conference calls to discuss their results yesterday (19 Oct).‌

  • Both companies pointed to pulling back in aggression in the International Direct Dialing (IDD) markets coupled with lower IDD unit costs helping boost earnings before interest, taxes, depreciation and amortization (EBITDA) margins, which was certainly a positive.
  • In the data market, 3Q ‌did see aggression scaled back in the "Gig War" BUT, DiGi has just launched a new postpaid plan offering 10GB of data (5GB anytime on 2G/3G and 4G with 5GB on 4G only and ONLY during weekends)  and 100mins of voice calls for a very attractive RM50/month. With postpaid average revenue per user (ARPU) of RM80 at DiGi, RM76 at Celcom and RM100 at Maxis, this does appear to be a very aggressive price point. The key now is how its peers react. The added risk of this plan is down-trading given that average data usage is 3-4GB.
  • Both management teams were less concerned by TM's webe as they were with incumbent mobile players impacting industry profitability.
  • Both also shied away from commenting on the payment structure for the new spectrum. More announcements are likely around 1 Nov, when the mobile operators are scheduled to accept the spectrum offer from the regulator.
  • No guidance was provided on 2017 capex, but MQ Research would expect capex levels for DiGi and Celcom to remain elevated with Maxis to show some easing once its ongoing IT capex program is completed.
  • Axiata's results are due out on 25 November, and based on the results of DiGi and Maxis, MQ Research expects Celcom to once again to have underperformed its peers from a service revenue perspective.
Action and recommendation
  • MQ Research maintains their preference for fixed line players, Telekom Malaysia and Time dotCom, for exposure to the Malaysian telecoms market.

Source: Macquarie Research - 20 Oct 2016

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