Maxis Berhad ADD, TP RM3.85, RM3.64 close
We see core EPS sliding 3.0% in FY22F (due to Makmur tax), before rebounding 19.8% in FY23F (post-Makmur tax, full recovery in roaming and migrant/tourist prepaid SIM sales) and rising 11.3% in FY24F. There is risk of our FY22-24F core EPS being 1.2-18.0% lower if the government proceeds with its 5G single wholesale network (SWN) plans based on the current commercial wholesale offer.
Telekom Malaysia ADD, TP RM7.30, RM5.79 close
We expect core EPS to grow 4.5% in FY22F (partly dragged by Makmur tax), before rebounding 37.9%/12.3% in FY23F/24F post-Makmur tax. Ex-Makmur tax, core EPS may rise 20.0%/20.4% in
FY22F/23F, on the back of Internet, ICT and data services revenue growth, with cost-saving initiatives helping to buffer any pressure from its fibre rollout acceleration.
JENDELA on track, with 6 months to go
- The industry is on track to meet JENDELA Phase 1 targets by year-end, despite some setbacks for smaller telcos in 2Q22.
- MCMC moves to a more pragmatic target of 100% Internet (vs. 4G) coverage for JENDELA Phase 2 (2023-25).
- Reiterate sector Overweight, with TM (Add, TP: RM7.30) as our top pick.
Telcos on track to meet JENDELA Phase 1 targets by year-end
? In its National Digital Infrastructure Plan (JENDELA) update, the Malaysian Communications and Multimedia Commission (MCMC) reported that 169k new fibre premises were passed in 2Q22, below the target by 3%. This was solely caused by Allo (74% below target) due to raw material shortages, while other service providers overachieved (TM: +9%, Time: +4%). On the current run-rate, the industry is still well on track to meet the year-end target of 7.5m premises passed (7.2m as of 2Q22).
? Mobile base station (BTS) upgrades to 4G in 2Q22 (+1,710 qoq) outdid the target by 6%. This was mainly driven by Maxis (36% above target), which more than offset a shortfall at YTL (37% below target due to delay in tower fiberisation rollout). Meanwhile, the rollout of new 4G sites in 2Q22 (+57 qoq) was 10% ahead of target due to Maxis and U Mobile (10% and 40% above target, respectively); Celcom and Digi were on track.
? Consequently, the mean mobile broadband download speed in 2Q22 rose further by 17% qoq to 47.0Mbps, comfortably surpassing Phase 1’s end-2022 target of 35Mbps. This was also attributed to the re-farming of spectrum from 3G to 4G use, with the completion of the 3G network shutdown. Additionally, MCMC reported the median 4G download speed at 29.89Mbps; possibly a better indicator of the average network experience, it is also now not too far from the mean target of 35Mbps.
MCMC shifts focus to 100% Internet (vs. 4G) coverage for Phase 2
? MCMC now targets 100% Internet (instead of 4G) coverage in populated areas by end2025, under Phase 2 of JENDELA. While this may seem like a slight change in wording, it is nonetheless meaningful and reflects MCMC’s pragmatic approach towards the use of various suitable connectivity technologies (e.g. satellite, TV white space, 5G) to cover the balance 3.1% of the population. This will avoid over-burdening mobile network operators (MNOs), when there are more cost-efficient methods, in our view.
? On the recent directive issued to several MNOs (Jun 2022) to improve their quality of service at several locations or face penalties of up to RM200k, MCMC says it has improved its monitoring procedures, which now allows it to more quickly issue notices to MNOs to take corrective actions. Despite this, we do not think that there is now greater risk of MNOs being fined as it only occurs if they fail to follow-up, while MCMC seems satisfied with their overall performance (vs. JENDELA targets).
Reiterate Overweight on Malaysian telco sector; top pick: TM
? We keep an Overweight rating on the Malaysian telco sector, as we think the potential earnings hit from 5G wholesale fees has already been factored into telcos’ share prices, which are down by an average of 21% YTD. We prefer the fixed to mobile segment due to better revenue growth prospects and more benign competition. TM is our top Malaysian telco pick. Downside risks: delays in final 5G resolution.