Highlighted Companies
Maxis Berhad ADD, TP RM3.85, RM3.46 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, RM5.41 close
We expect core EPS to grow 4.5% in FY22F (partly dragged down 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.
Closing in on year-end JENDELA targets
- No hiccups in 3Q22 as telcos remain well on track to hit JENDELA Phase 1 targets by year-end.
- Access pricing will only be finalised in Feb 2023. MCMC highlighted that the final price for HSBB in the 2017 review was higher than initially proposed.
- Reiterate sector Overweight, with TM (Add, TP: RM7.30) as our top pick.
Telcos on track to meet Phase 1 targets with end of year in sight
? In its National Digital Infrastructure Plan (JENDELA) update today, the Malaysian Communications and Multimedia Commission (MCMC) reported that 242k new fibre premises were passed in 3Q22, above the target by 64%. This was driven by TM which surpassed its targets by 156%. On the current run-rate, the industry is well on track to meet the year-end target of 7.5m premises passed (7.44m as at end-3Q22).
? For mobile, base station (BTS) upgrades to 4G in 3Q22 (+1,923 qoq) exceeded target by 7%, mainly due to Maxis (>13%) and Celcom (>3%). Meanwhile, the rollout of new 4G sites was in line with the target for all operators. Consequently, the mean mobile broadband download speed rose a further 12% qoq to 52.5Mbps, far ahead of the target of 35Mbps. Median 4G download speed inched up 3% qoq to 30.7Mbps.
Final access pricing delayed to Feb 2023
? With regards to the recent Public Inquiry (PI) Paper on Review of Access Pricing (5 Oct 2022), MCMC said it is still at the stage of obtaining inputs from all stakeholders and that the closing date for submissions have been extended to 3 Jan 2023 (from 21 Nov 2022). Thus, on the low proposed access pricing for high-speed broadband (HSBB), MCMC says it can only make its final decision (likely by 3 Feb 2023, we believe) once the PI stage closes. Nevertheless, MCMC highlighted that the final access pricing for HSBB in the previous review in 2017 was set higher than what was initially proposed during the PI stage.
? MCMC is in the midst of reviewing the market structure (including engaging external consultants) to determine the ideal number of players for the Malaysian telco market. Despite the Celcom-Digi merger, MCMC says it is not opposed to further market consolidation, if other players have M&A plans. In such a situation, MCMC highlighted that it can implement appropriate remedies to address issues of market concentration, similar to what was applied to the Celcom-Digi merger.
Reiterate Overweight on Malaysian telco sector; top pick: TM
? We stay sector Overweight 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 24% 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, though its share price may not re-rate much until the Review of Access Pricing is concluded by Feb 2023, in our view. Downside risks: low final access pricing for HSBB and adverse policy changes after the upcoming 15th general elections (GE15).
