Telco - overall - Read-throughs from 4Q14
Recommendation: Under Weight
Industry mobile service revenue rose 2.1% qoq in 4Q14, but still fell 1.2% in 2014 for its worst-ever performance. The overall market remains competitive. DiGi continued to gain revenue market share slightly from Maxis/Celcom. Across the board, telcos guided cautiously on 2015 growth and kept capex high for network investments. We remain Underweight on the Malaysian telco sector. Despite the positive GST impact, we see risk of more intense competition and high capex in FY15. Valuations are also not cheap, with Malaysian telcos trading at an average FY15 EV/OpFCF of 17.0x vs. 14.3x for ASEAN telcos. Maintain Hold on Axiata, DiGi and Maxis, and Reduce on TM. Telkom Indonesia, Singtel and Thaicom remain our top ASEAN telco picks.
We remain Underweight on the Malaysian telco sector. Despite the positive GST impact, we see risk of more intense competition and high capex in FY15. Valuations are also not cheap, with Malaysian telcos trading at an average FY15 EV/OpFCF of 17.0x vs. 14.3x for ASEAN telcos. Maintain Hold on Axiata, DiGi and Maxis, and Reduce on TM. Telkom Indonesia, Singtel and Thaicom remain our top ASEAN telco picks.
Mobile revenue pick-up
Industry mobile service revenue saw a 2.1% qoq (-0.6% yoy) pick-up in 4Q14. This was driven by the strong 8.4% qoq (+25.2% yoy) growth in mobile Internet, positive seasonality and the Big 3 telcos regaining some market traction vs. the smaller players. Mobile Internet formed 31.6% of mobile service revenue in 4Q14 vs. 25.1% a year ago, with smartphone adoption rising 16.1% pts yoy (+4.2% pts qoq) to 53.2% as at end-2014.
DiGi gains market share
DiGi continued to gain mobile revenue market share, albeit at a more incremental 0.2% pt qoq in 4Q14. This came at the expense of Maxis and Celcom, which both lost 0.1% pt each. Nevertheless, Maxis gained significant operational traction in prepaid with its strongest-ever quarterly net adds, attributed to the popularity of #Hotlink and rising traction in underserved segments. Celcom was still showing weak subscriber trends in 4Q14 due to some delays in the completion of its IT system upgrade and more work required to regain the goodwill of dealers after its IT system was impacted by issues in mid-2014.
Market stayed competitive
The mobile market stayed competitive in 4Q14. Industry RPM was steady qoq/yoy in 4Q14 but Maxis’s effective tariffs inched down closer to those of Celcom/DiGi. While partly driven by seasonality, Maxis also ramped up its sales & marketing spend significantly in 4Q14 (+13% qoq) to its highest-ever levels since 1Q09. DiGi’s sales & marketing spend also rose (+5% qoq) to its highest level since 3Q08. Celcom launched new prepaid (Internet of XPax) and postpaid plans (First Basic/Elite) in 4Q14 and is planning to launch more new data-led products at the beginning of 2Q15. DiGi did a brand refresh exercise (“Lets Inspire”) in mid-Jan 2015, while U Mobile launched its new #GetClever plans at end-Jan 2015.
Cautious 2015 guidance, high capex
Telcos were generally quite cautious with their growth guidance for 2015, citing competition and macro uncertainties. As we had highlighted previously, telcos guided for sustained high capex going into 2015 due to 3G/4G network investments. In particular, DiGi maintained its capex at 2014’s elevated level of RM900m, after bringing forward its 4G coverage target to 50% by end-2015, vs. end-2017 previously.
Source: CIMB Daybreak - 04 March 2015
Recommendation: Under Weight
Industry mobile service revenue rose 2.1% qoq in 4Q14, but still fell 1.2% in 2014 for its worst-ever performance. The overall market remains competitive. DiGi continued to gain revenue market share slightly from Maxis/Celcom. Across the board, telcos guided cautiously on 2015 growth and kept capex high for network investments. We remain Underweight on the Malaysian telco sector. Despite the positive GST impact, we see risk of more intense competition and high capex in FY15. Valuations are also not cheap, with Malaysian telcos trading at an average FY15 EV/OpFCF of 17.0x vs. 14.3x for ASEAN telcos. Maintain Hold on Axiata, DiGi and Maxis, and Reduce on TM. Telkom Indonesia, Singtel and Thaicom remain our top ASEAN telco picks.
We remain Underweight on the Malaysian telco sector. Despite the positive GST impact, we see risk of more intense competition and high capex in FY15. Valuations are also not cheap, with Malaysian telcos trading at an average FY15 EV/OpFCF of 17.0x vs. 14.3x for ASEAN telcos. Maintain Hold on Axiata, DiGi and Maxis, and Reduce on TM. Telkom Indonesia, Singtel and Thaicom remain our top ASEAN telco picks.
Mobile revenue pick-up
Industry mobile service revenue saw a 2.1% qoq (-0.6% yoy) pick-up in 4Q14. This was driven by the strong 8.4% qoq (+25.2% yoy) growth in mobile Internet, positive seasonality and the Big 3 telcos regaining some market traction vs. the smaller players. Mobile Internet formed 31.6% of mobile service revenue in 4Q14 vs. 25.1% a year ago, with smartphone adoption rising 16.1% pts yoy (+4.2% pts qoq) to 53.2% as at end-2014.
DiGi gains market share
DiGi continued to gain mobile revenue market share, albeit at a more incremental 0.2% pt qoq in 4Q14. This came at the expense of Maxis and Celcom, which both lost 0.1% pt each. Nevertheless, Maxis gained significant operational traction in prepaid with its strongest-ever quarterly net adds, attributed to the popularity of #Hotlink and rising traction in underserved segments. Celcom was still showing weak subscriber trends in 4Q14 due to some delays in the completion of its IT system upgrade and more work required to regain the goodwill of dealers after its IT system was impacted by issues in mid-2014.
Market stayed competitive
The mobile market stayed competitive in 4Q14. Industry RPM was steady qoq/yoy in 4Q14 but Maxis’s effective tariffs inched down closer to those of Celcom/DiGi. While partly driven by seasonality, Maxis also ramped up its sales & marketing spend significantly in 4Q14 (+13% qoq) to its highest-ever levels since 1Q09. DiGi’s sales & marketing spend also rose (+5% qoq) to its highest level since 3Q08. Celcom launched new prepaid (Internet of XPax) and postpaid plans (First Basic/Elite) in 4Q14 and is planning to launch more new data-led products at the beginning of 2Q15. DiGi did a brand refresh exercise (“Lets Inspire”) in mid-Jan 2015, while U Mobile launched its new #GetClever plans at end-Jan 2015.
Cautious 2015 guidance, high capex
Telcos were generally quite cautious with their growth guidance for 2015, citing competition and macro uncertainties. As we had highlighted previously, telcos guided for sustained high capex going into 2015 due to 3G/4G network investments. In particular, DiGi maintained its capex at 2014’s elevated level of RM900m, after bringing forward its 4G coverage target to 50% by end-2015, vs. end-2017 previously.
Source: CIMB Daybreak - 04 March 2015
