BURSA MALAYSIA TELECOMUNICATION STOCKS OUTLOOK
• Axiata raised RM1.83bn from sale of 20% stake in XL
With the funds raised from this development, we believe there is a high likelihood for Axiata to start paying dividends from FY11 onwards. In addition, Axiata should have sufficient FCF as revenue and profits are forecast to grow in the teens in FY10 and FY11.
• TM launches HSBB
TM finally launched its HSBB service under the brand name UniFi with
much fanfare. We are positive on the pricing of the packages which starts at RM149.
• TM pulls in content for IPTV
TM signed agreements with 20 content partners to provide a diverse mix of programming and content two days prior to the Mar 24 launch of its high-speed broadband (HSBB) service. TM however has previously stated that it does not intend to compete directly with Astro.
• TM signs partnership deal with MU
TM signed a five-year agreement with Manchester United (MU) to link the two brands in marketing campaigns and promotional activities. We are somewhat neutral on this development given that TM is mainly a local brand and thus we find it difficult to see how MU as a global brand in football fits into TM’s local brand image as a telco service provider.
• DiGi to get a bite of the apple
DiGi launched the sale of the iconic iPhone on Mar 31, whereby pre-
orders hit 10,000. Overall, we are mildly positive as DiGi will benefit rom being able to compete more effectively in postpaid and wireless
broadband market given the popularity of the iPhone among Malaysians.
• Global developments
Notable global developments include all applicants qualifying for India’s 3G auction, Bharti sealing US$9bn deal for Zain's Africa assets and China Mobile eyeing M&As for growth.
• Maintain NEUTRAL
Despite our Hold call, Axiata remains our top pick as we believe potential upside earnings surprises for 1QFY10 may see further re-rating of the stock. In addition, Axiata may start returning dividends in FY11 on the back of improving profitability and stronger FCF.
With the funds raised from this development, we believe there is a high likelihood for Axiata to start paying dividends from FY11 onwards. In addition, Axiata should have sufficient FCF as revenue and profits are forecast to grow in the teens in FY10 and FY11.
• TM launches HSBB
TM finally launched its HSBB service under the brand name UniFi with
much fanfare. We are positive on the pricing of the packages which starts at RM149.
• TM pulls in content for IPTV
TM signed agreements with 20 content partners to provide a diverse mix of programming and content two days prior to the Mar 24 launch of its high-speed broadband (HSBB) service. TM however has previously stated that it does not intend to compete directly with Astro.
• TM signs partnership deal with MU
TM signed a five-year agreement with Manchester United (MU) to link the two brands in marketing campaigns and promotional activities. We are somewhat neutral on this development given that TM is mainly a local brand and thus we find it difficult to see how MU as a global brand in football fits into TM’s local brand image as a telco service provider.
• DiGi to get a bite of the apple
DiGi launched the sale of the iconic iPhone on Mar 31, whereby pre-
orders hit 10,000. Overall, we are mildly positive as DiGi will benefit rom being able to compete more effectively in postpaid and wireless
broadband market given the popularity of the iPhone among Malaysians.
• Global developments
Notable global developments include all applicants qualifying for India’s 3G auction, Bharti sealing US$9bn deal for Zain's Africa assets and China Mobile eyeing M&As for growth.
• Maintain NEUTRAL
Despite our Hold call, Axiata remains our top pick as we believe potential upside earnings surprises for 1QFY10 may see further re-rating of the stock. In addition, Axiata may start returning dividends in FY11 on the back of improving profitability and stronger FCF.
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MALAYSIA CORPORATE NEWS
Axiata raised RM1.83bn from sale of 20% stake in XL Axiata
Axiata raised IDR5.05trn (RM1.83bn) from completing the sale of a 20% equity stake in XL Axiata (XL) to increase free float and improve liquidity. According to management, Axiata may use the proceeds to pay down some debt or pay out dividends in 2011 or 2012.
With the funds raised from this development, we believe there is a high likelihood for Axiata to start paying dividends from FY11 onwards. In addition, Axiata should have sufficient FCF as revenue and profits are forecast to grow in the teens in FY10 and FY11 while capex spending is expected to remain fairly constant.
With EBITDA forecast to grow by an additional RM755m between FY09 and FY11, this should be sufficient to pay out RM503m in dividends in FY11 if we assume 25% payout from FY11 net profit estimated at RM2.01bn. Any shortfall can be easily covered by the recent raising of RM1.83bn.
Hence, we have conservatively assumed a dividend payout ratio of 25% for FY11-12, which implies dividend yields of 1.5% to 1.8%. Special dividends are unlikely as Axiata may opt to conserve some cash to further deleverage and fund capex requirements.
Axiata is expected to announce a more concrete dividend policy in 3QFY10.
TM launches HSBB
TM finally launched its HSBB service under the brand name UniFi with much fanfare. The HSBB retail offering is a triple-play offering with speeds of up to 5Mbps, 10Mbps and 20Mbps based on a two-year contract.
We are positive on the pricing of the packages which starts at RM149 for the 5Mbps package which includes free fixed line calls. The packages are quite competitive in the market as in comparison TIME dotCom (TdC) offers a comparable 5Mbps speed but slightly costlier at RM199 a month and postpaid fixed line voice services.
A download cap was initially imposed by TM for the packages which ranges from 60GB to 120GB maximum download per month. In contrast, our initial checks reveal TdC does not have an explicit cap. HSBB users who exceeded their monthly cap will find their download
speed throttled to 10% of their purchased speed.
However, after much negative feedback from consumers, TM subsequently removed the cap a few days after launch. In any case, we believe had the cap stayed, we believe it would not have materially affected the take-up rate of TM’s latest service as most potential subscribers lack alternatives for high-speed Internet service. TdC as TM’s closest competitor offers high-speed Internet service only in Mont Kiara.
TM pulls in content for IPTV
TM signed agreements with 20 content partners to provide a diverse mix of programming and content two days prior to the Mar 24 launch of its high-speed broadband (HSBB) service. How much TM has paid so far for the content however was undisclosed.
While we are mildly positive on the news which show some momentum behind TM’s IPTV rollout, TM still lacks compelling content for certain entertainment (the widely popular Akademi Fantasia) and football which commands a wide following in Malaysia.
Axiata raised RM1.83bn from sale of 20% stake in XL Axiata
Axiata raised IDR5.05trn (RM1.83bn) from completing the sale of a 20% equity stake in XL Axiata (XL) to increase free float and improve liquidity. According to management, Axiata may use the proceeds to pay down some debt or pay out dividends in 2011 or 2012.
With the funds raised from this development, we believe there is a high likelihood for Axiata to start paying dividends from FY11 onwards. In addition, Axiata should have sufficient FCF as revenue and profits are forecast to grow in the teens in FY10 and FY11 while capex spending is expected to remain fairly constant.
With EBITDA forecast to grow by an additional RM755m between FY09 and FY11, this should be sufficient to pay out RM503m in dividends in FY11 if we assume 25% payout from FY11 net profit estimated at RM2.01bn. Any shortfall can be easily covered by the recent raising of RM1.83bn.
Hence, we have conservatively assumed a dividend payout ratio of 25% for FY11-12, which implies dividend yields of 1.5% to 1.8%. Special dividends are unlikely as Axiata may opt to conserve some cash to further deleverage and fund capex requirements.
Axiata is expected to announce a more concrete dividend policy in 3QFY10.
TM launches HSBB
TM finally launched its HSBB service under the brand name UniFi with much fanfare. The HSBB retail offering is a triple-play offering with speeds of up to 5Mbps, 10Mbps and 20Mbps based on a two-year contract.
We are positive on the pricing of the packages which starts at RM149 for the 5Mbps package which includes free fixed line calls. The packages are quite competitive in the market as in comparison TIME dotCom (TdC) offers a comparable 5Mbps speed but slightly costlier at RM199 a month and postpaid fixed line voice services.
A download cap was initially imposed by TM for the packages which ranges from 60GB to 120GB maximum download per month. In contrast, our initial checks reveal TdC does not have an explicit cap. HSBB users who exceeded their monthly cap will find their download
speed throttled to 10% of their purchased speed.
However, after much negative feedback from consumers, TM subsequently removed the cap a few days after launch. In any case, we believe had the cap stayed, we believe it would not have materially affected the take-up rate of TM’s latest service as most potential subscribers lack alternatives for high-speed Internet service. TdC as TM’s closest competitor offers high-speed Internet service only in Mont Kiara.
TM pulls in content for IPTV
TM signed agreements with 20 content partners to provide a diverse mix of programming and content two days prior to the Mar 24 launch of its high-speed broadband (HSBB) service. How much TM has paid so far for the content however was undisclosed.
While we are mildly positive on the news which show some momentum behind TM’s IPTV rollout, TM still lacks compelling content for certain entertainment (the widely popular Akademi Fantasia) and football which commands a wide following in Malaysia.
TM has previously stated that it does not intend to compete directly with Astro, and w believe that it will likely market IPTV as a complementary product within its triple-pla offering comprising high-speed Internet, IPTV and voice whereby high-speed Internet is the core product most consumers are craving for.
However, TM will benefit if Malaysia moves towards the direction of Singapore whereby the Singaporean government this month instructed SingTel and StarHub to carry exclusive content purchased by another player to make such content more accessible and cheaper fo
consumers for contracts signed from Mar 12 onwards. If such a move occurs, TM will likely be supportive and benefit the most given its limited content range. TM signs partnership deal with MU
However, TM will benefit if Malaysia moves towards the direction of Singapore whereby the Singaporean government this month instructed SingTel and StarHub to carry exclusive content purchased by another player to make such content more accessible and cheaper fo
consumers for contracts signed from Mar 12 onwards. If such a move occurs, TM will likely be supportive and benefit the most given its limited content range. TM signs partnership deal with MU
TM signed a five-year agreement with Manchester United (MU) to link the two brands in marketing campaigns and promotional activities. The value of the deal however was undisclosed. With the deal, TM becomes MU’s official integrated telco partner in Malaysia with licensing, intellectual property and dealership rights to produce and distribute merchandises bearing the club’s crest and team images.
We are somewhat neutral on this development given that TM is mainly a local brand and thus we find it difficult to see how MU as a global brand in football fits into TM’s local brand image as a telco service provider.
Nonetheless, we are aware of MU’s brand prowess especially in Asia and acknowledge that TM’s association with MU may help increase TM’s brand image in the medium to long term, depending on whether both parties choose to extend their partnership.
Of strategic importance is that TM will very likely be able to offer MU-related TV content (MUTV channel) through its IPTV services, as a bonus to consumers to sign up for TM’s HSBB retail services.
We are somewhat neutral on this development given that TM is mainly a local brand and thus we find it difficult to see how MU as a global brand in football fits into TM’s local brand image as a telco service provider.
Nonetheless, we are aware of MU’s brand prowess especially in Asia and acknowledge that TM’s association with MU may help increase TM’s brand image in the medium to long term, depending on whether both parties choose to extend their partnership.
Of strategic importance is that TM will very likely be able to offer MU-related TV content (MUTV channel) through its IPTV services, as a bonus to consumers to sign up for TM’s HSBB retail services.
DiGi to get a bite of the apple
DiGi launched the sale of the iconic iPhone on Mar 31, whereby pre-orders hit 10,000. In a clever strategy to market the iPhone as an affordable smartphone for the mass market, DiGi is offering consumers the choice of zero upfront cost for the iPhone via a 36 month instalment plan. This may perhaps explain the strong take-up so far.
We suspect DiGi is avoiding price competition, as a back of the envelope calculation reveals that in a head-to-head comparison of the total costs (including the iPhone) of the cheapest plans between DiGi and Maxis, the difference is less than RM100, once Maxis latest RM200 discount for the iPhone is taken into consideration.
Consumers should decide carefully if they are heavy Internet users or make more voice calls. A quick comparison with Maxis’ current plans reveal that DiGi is offering consumers on average double Internet data usage and SMS, but almost half less voice minutes. Nonetheless, we acknowledge that DiGi may have the upper hand for now by offering more Internet usage for less while also not charging extra if a subscriber exceeds his monthly cap – a feature which Maxis charges extra for.
DiGi launched the sale of the iconic iPhone on Mar 31, whereby pre-orders hit 10,000. In a clever strategy to market the iPhone as an affordable smartphone for the mass market, DiGi is offering consumers the choice of zero upfront cost for the iPhone via a 36 month instalment plan. This may perhaps explain the strong take-up so far.
We suspect DiGi is avoiding price competition, as a back of the envelope calculation reveals that in a head-to-head comparison of the total costs (including the iPhone) of the cheapest plans between DiGi and Maxis, the difference is less than RM100, once Maxis latest RM200 discount for the iPhone is taken into consideration.
Consumers should decide carefully if they are heavy Internet users or make more voice calls. A quick comparison with Maxis’ current plans reveal that DiGi is offering consumers on average double Internet data usage and SMS, but almost half less voice minutes. Nonetheless, we acknowledge that DiGi may have the upper hand for now by offering more Internet usage for less while also not charging extra if a subscriber exceeds his monthly cap – a feature which Maxis charges extra for.
Overall, we are mildly positive on this development for DiGi as it will benefit from being able to compete more effectively in postpaid and wireless broadband market given the popularity of the iPhone among Malaysian consumers. The offering of the smart phone should also help stem the decline of blended ARPU. In addition, DiGi should see higher data revenue contribution currently at c.20% to overall mobile revenue.
However, higher A&P costs and handset subsidies as a result of offering the iPhone may put downside pressure on DiGi’s EBITDA margins this year. Such downside pressure on DiGi’s EBITDA margins should however be limited unless DiGi and Maxis compete via handset subsidies. However, we believe the telcos will focus instead on quality and reliability of network service. Price competition we believe will only serve to increase churn and provides little value-added benefit to consumers if the network service is not up to par.
However, higher A&P costs and handset subsidies as a result of offering the iPhone may put downside pressure on DiGi’s EBITDA margins this year. Such downside pressure on DiGi’s EBITDA margins should however be limited unless DiGi and Maxis compete via handset subsidies. However, we believe the telcos will focus instead on quality and reliability of network service. Price competition we believe will only serve to increase churn and provides little value-added benefit to consumers if the network service is not up to par.
Telco stocks trended sideways in the last week of Feb on the lack of fresh leads. Meanwhile, recent filings on Mar 24 indicate EPF bought 41,200 DiGi shares. PNB and EPF both raised their stakes in TM, whereby PNB bought 1,800,000 TM shares on Mar 23 while
EPF bought 3,440,300 TM shares on Mar 26. On Mar 26, PNB sold 2,000,000 Axiata shares while EPF sold 2,518,100 Axiata shares.
EPF bought 3,440,300 TM shares on Mar 26. On Mar 26, PNB sold 2,000,000 Axiata shares while EPF sold 2,518,100 Axiata shares.
source: ECMLibra Research
