CIMB Equities Research is neutral on the Malaysian telco sector and switched its Malaysian telco top pick from Digi to Axiata, due to strong earnings rebound in FY19F and bigger upside to share price for the latter.
It said on Friday it foresees flattish industry mobile service revenue growth over the next three years, with intense competition potentially re-emerging at some point.
It thinks Telekom Malaysia’s (TM) fixed line broadband business is likely to face significant headwinds as the government pushes for more affordable/faster broadband services by opening the market up to more competition.
Malaysian telcos trade at an 11% premium over the Asean average 2019F enterprise value/operating free cashflow (EV/OpFCF) of 13.5 times, with decent 2018-19F yields of 3.5%-3.8%.
However, the downside risks are spectrum auctions for the 700MHz/2600MHz with higher-than-expected final prices and more intense competition. An upside risk is value creation from M&As.
CIMB Research said there were no major new headline promotions in September-November.
However, U Mobile’s GX50 unlimited plan (RM50/month, 5Mbps speed cap) remains on the market.
“At Digi’s retail shops, we saw some attractive ‘Limited Time Offers’, likely to counter competitive pressure in the lower-end segment. For now, the market is still largely stable, but we are watching if any of the Big Three telcos launch low-priced fixed speed unlimited plans,” it said.