ed: TH / sa:BC, PY, CS

Cautious tone

Industry service revenue fell by 1% in 2017 mainly due

to weakness in prepaid segment

Expect service revenue to either be flat or decline by a

a low single digit in 2018

Mobile operators are embarking on digitalisation and

experimenting with digital MVNOs

Prefer fixed-line operators; TM is our only BUY call

Ending 2017 on a good note. Total service revenue for the

mobile incumbents fell by 1.0% in 2017. This was solely

attributed to DiGi (-5%) due to the sharp decline in its prepaid

segment, while Maxis and Celcom were less affected and

managed to record marginal growth of 0.8% and 0.5%

respectively. Continued SIM consolidation and prepaid-to-

postpaid migration remain the key underlying trend for the

industry in 2017, leading to falling mobile penetration rate.

Flattish outlook for 2018. We expect industry service revenue

to either be flat or decline by a low single digit in 2018 as voice

and SMS continue to be cannibalised by rising adoption of data

(~49% of revenue). The prepaid market should still be

challenging for DiGi given the headwinds in migrant workers

segment, while Maxis will suffer some revenue loss from the

termination of network-sharing agreement with U Mobile.

Celcom will focus more on cost-optimisation initiatives in 2018 to

improve its EBITDA margins which are below peers'. Lastly, we

expect the award of the 700MHz spectrum to be finalised in

2H18, with the three players getting equal share (2x10 MHz).

Incumbents are experimenting with digital MVNOs. All the

three mobile incumbents have launched their respective digital

mobile services recently, but all these are operating separately as

MVNOs under different brands. This is perhaps to avoid

cannibalising their existing subscriber bases and also to serve as

‘testing platforms’ to implement new innovative ideas. TM has

also introduced a digital-driven prepaid mobile offering (called

Unifi Mobile) where everything from SIM registration process to

account management is done online via its mobile@unifi app.

Domestic liquidity to support share price. Given the

relatively stable outlook and lower risks on spectrum in 2018,

we believe the share prices of Malaysian telcos will continue to

be well supported by ample domestic liquidity, even though

valuations are at a premium relative to regional peers. We prefer

fixed-line operators due to their better growth prospects, with

TM being our only BUY call. The current weakness in TM's share

price, which could be due to uncertainties over GE14, offers a

good opportunity to accumulate.

KLCI : 1,843.92

Analyst TOH Woo Kim +60 32604 3917 wookim@alliancedbs.com

Axiata Group : Regional cellular operator

Digi.Com : A Malaysia-focused cellular operator

Maxis Bhd : Largest Malaysian cellular operator by subscribers

Telekom Malaysia : Dominant fixed line operator in Malaysia

TIME dotCom Bhd : A data-centric, fixed-line telecommunication provider based in Malaysia serving enterprises and operators with small presence in the retail broadband segment

Estimated subscriber market share in 2017

Sources: MCMC, Companies, AllianceDBS

Maxis24%

Celcom22%

DiGi28%

U Mobile12%

Others/MVNOs14%

DBS Group Research . Equity

12 Mar 2018

Malaysia Industry Focus

Malaysia Telecom

Refer to important disclosures at the end of this report

STOCKS

12-mth

Price Mkt Cap Target Price Performance (%)

RM US$m RM 3 mth 12 mth Rating

Axiata Group 5.43 12,558 5.20 1.3 15.0 HOLD Digi.Com 4.75 9,439 4.20 1.7 (6.5) FULLY

VALUED Maxis Bhd 5.92 11,818 5.35 (0.3) (7.5) HOLD Telekom Malaysia 5.66 5,436 7.10 (6.3) (9.9) BUY TIME dotCom Bhd 8.30 1,233 8.60 (8.8) (3.5) HOLD

Sources: AllianceDBS, Bloomberg Finance L.P.

Closing price as of 9 Mar 2018

Industry Focus

Malaysia Telecom

Page 2

4Q17 results round-up

4Q17 results – ending FY17 on a good footing. 4Q17 results of

the Big 3 mobile incumbents were decent and in line with

expectations. Overall, continued SIM consolidation and prepaid-

to-postpaid migration remained the key underlying trend for the

mobile industry in 2017, leading to falling mobile penetration

rate, a sluggish prepaid segment but offset by the growth in

postpaid segment.

For fixed-line players, TIME reported stronger numbers due to a

strong recovery in its 4Q17 sales and lower taxation, while TM

results were inline. Subscribers net add for both players remains

robust given pent-up demand for high-speed fibre broadband.

DiGi suffered the most in 2017. Total service revenue for the

mobile incumbents contracted by 1.0% in 2017, and this was

solely attributed to DiGi (-5% y-o-y) due to the sharp decline in

its prepaid segment. Maxis outperformed both of its peers

(+0.8% y-o-y) as it managed to grow its premium postpaid

subscriber base to offset a weaker prepaid segment. After two

years of decline, Celcom finally recorded a slight growth of 0.5%

y-o-y in 2017 as it focused on attracting and retaining high-ARPU

subscribers.

Mobile players' service revenue, 2017 vs. 2016 (in RM m)

Sources: Companies

Incumbent lost market share in prepaid. Collectively, the three

mobile incumbents lost about 2.7m prepaid subs in 2017 - 1.9m

subs from the overall decline in prepaid market size and 0.8m

subscriber share lost to UMobile and MVNOs. DiGi remains the

No.1 player for prepaid segment, far above peers in terms of

number of subscribers. However, given the lower ARPU of its

subscribers, DiGi's prepaid revenue base (RM933m) was just

slightly above that of Maxis (RM904m) in 4Q17.

EXHIBIT: Quarterly prepaid subscribers trend (in ‘000)

Sources: Companies

Relying on postpaid growth. Overall, trends for the postpaid

segment were healthy with growing subscriber base (for Maxis

and DiGi) and/or higher ARPU (Celcom). Competition in postpaid

had been rational in 2017, and a lot of the growth can be

attributed to the strong surge in data usage. DiGi was the key

beneficiary of the prepaid-to-postpaid migration wave as it offers

entry-level plans at the sub RM50-60 range. On the other hand,

although their subscriber bases were rather flattish, Maxis and

Celcom still managed to increase their ARPU respectively, thanks

to their strong franchise in the business/enterprise segment as

well as better network quality.

EXHIBIT: Quarterly postpaid subscriber trend (in ‘000)

Sources: Companies

8,455

6,226 6,026

8,525

5,914 6,056

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Maxis DiGi Celcom

2016 2017+0.8%

0.5%

(5.0%)

9,287

6,997

6,724 6,000

7,000

8,000

9,000

10,000

11,000

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

DiGi Maxis Celcom

2,480

2,853

2,822

1,000

1,500

2,000

2,500

3,000

3,500

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

DiGi Maxis Celcom

Industry Focus

Malaysia Telecom

Page 3

Baseline pricing and data quota relatively stable

Minor tweaks only. Baseline pricing and data quota for both

prepaid and postpaid plans stayed relatively unchanged in

2017. But, from time to time, mobile operators did introduce

new promotions or made minor adjustment to their plans,

especially for free data allocation and add-ons.

In postpaid, recent changes made by Celcom and DiGi were

aimed at driving incremental ARPU increase with upgradeable

options (AnydayGB and GBoost). Celcom takes it a notch

higher by bundling the upgrade option for free (RM10/month)

if subscribers commit to a 12-month contract.

In prepaid, tweaks were mainly done by Maxis to align its plans

with peers. It slightly raised the base data quota for its RM35

internet passes (from 5GB to 6GB) and replaced the previous

vanilla free data allocation (8GB Weekend and 1GB/1 hour

everyday) to a new one that centres around social media and

messaging apps data usage.

The new Hotlink FLEX Postpaid. Maxis also introduced a new

entry-level postpaid plan using its Hotlink brand (see Exhibit

below). We think this is primarily targeted at customers who

have low data usage but want unlimited call and SMS. As a

matter of fact, at RM55 for 6GB data, there are better options

out there (with unlimited calls) such as the Digi's RM58

postpaid plan (5+5 GB data) or Maxis Hotlink's own prepaid

internet passes (RM60 for 8GB data and free data for social

media or messaging apps).

EXHIBIT: Comparison of postpaid plans by mobile operators (as at 9 March 2018)

Sources: Companies, AllianceDBS

EXHIBIT: Comparison of monthly internet passes and prepaid plans by mobile operators (as at 9 March 2018)

Sources: Companies, AllianceDBS

Ma xis Ce lcom DiGi U Mobi le

OnePlan 98/128/158 First Gold / Gold + Postpaid 80/110/150 P48/68 & Unlimited P99

Monthly commitme nt (RM) 98/128/158 80/98 80/110/150 48/68/99

Ba se da ta quota (GB) 15/40/50GB 10/20GB 10/25/Unlimited 5/15/Unlimited

Fre e da ta (GB)Weekend (4G) - 15GB for OnePlan

98

Weekend - 10/20GB

Video WallaTM

- 30/100GB (free

12 months)

Weekend 4G - 10/25Music streaming - Unlimited

Video streaming - 5/7/Unlimited

Ca l l & SMS Unlimited calls & SMS Unlimited calls Unlimited calls Unlimited calls

Re ma rks / Othe rs

Postpaid 80/110 - upgradeable to

All-day Internet + Extra 10GB for

RM10/month

Unlimited P99 - Free data roaming

of 3GB in 12 countries. 30GB limit

for Hotspot

OnePlan 98 - upgradeable to

30GB all-day data for

RM10/month

Free Yonder Music

AnydayGB - RM10/month to

combine weekend & weekday

data (free with 12-month

contract)

Ma xis Ce lcom DiGi U Mobi le

Hotlink RED All-New Xpax Prepaid LiVE Unlimited Power Prepaid

Monthly inte rne t pa sse s (RM) 35/45 30/50 30/38/48 20/30/50

Ba se da ta quota (GB) 6/8GB 5/10GB 5/8/10GB 1.5/7.5*/12*GB

Fre e da ta (GB)FREE Data for messaging apps OR

social media

FREE 10GB of Instagram & Facebook

Xpax 50 - FREE Unlimited Music

Wallatm

Promo till 30 Apr - Bonus 10/20 GB

data for first 3 days

500MB daily quota for Facebook,

Twitter, & Instagram

Music streaming - Unlimited

Video streaming - 0.5/2.5/10GB

Pre pa id p la n unique fe a ture sFREE 10GB of Facebook and 500MB

Basic Internet

FREE 10GB of Basic Internet &

Facebook

LiVE - FREE monthly 10GB of Video +

Music streaming quota. FREE 1000

mins of Call and SMS to 6 DiGi

numbers

FREE unlimited data for Facebook,

Instagram, & Twitter

FREE 1GB basic Internet every month

Industry Focus

Malaysia Telecom

Page 4

EXHIBIT: Maxis Hotlink Postpaid FLEX

Source: Hotlink

Embracing digitalisation

TM introduces Unifi Mobile. TM recently launched its re-

branded mobile business at the start of the year. Called Unifi

Mobile, it is a digital-driven prepaid mobile offering where

everything from SIM registration process to account

management is done online via TM mobile@unifi app (See

Appendix for further details).

The key proposition for Unifi Mobile is that there is no expiry

for the prepaid credit, data quota, call mins and SMS as long

as the line remains active (90-day grace period of inactivity).

This is in contrast with existing prepaid plans in the market,

where unutilised data quota, call mins and SMS will expire

after a period of time and are not carried forward. Validity is

also longer for Unifi Mobile (90 days from last reload or add-

on purchase, regardless of amount) compared to the typical 1

day of validity per RM1 reload practiced by the other mobile

operators.

Incumbents are experimenting via MVNOs. All the three mobile

incumbents had also launched their respective digital mobile

services recently, but all these are under different brands and

operate separately as mobile virtual network operators

(MVNOs). This is perhaps to avoid cannibalising their existing

subscriber bases and also to serve as ‘testing platforms’ to

implement innovative ideas. We summarise the key unique

features of each of the digital MVNOs, with further details

appended in the Appendix.

Yoodo by Celcom Axiata – fully customisable plan. Yoodo

offers a fully customisable mobile plan where subscribers can

determine the amount of data, call mins and SMS that they

need. Account management and changes to the plan can be

made conveniently via a simple app. Subscribers are charged

upfront and payment is made through a registered credit or

debit card. At first glance, we think Yoodo's rates are not

competitive enough to match the generous free data

allocation by most existing prepaid plans.

Ookyo by Maxis – unlimited data for apps. Ookyo plan shares a

lot of similarities and we think it could have inspired the recent

changes to Hotlink Prepaid and Hotlink Postpaid FLEX. For

RM30/month, Ookyo offers 4GB of base data, free data for

chatting apps, and a choice of unlimited internet for apps in

either the Social Pack (Facebook, Instagram, etc.) or

Entertainment Pack (Spotify, Joox, etc.). Subscribers can also

purchase individual add-ons which provide unlimited internet

access for other apps such as YouTube and various popular

mobile games.

tapp by DiGi – unused data and call mins are sold back in

exchange for credit. tapp is also a fully customisable digital

prepaid service by DiGi that is more flexible and has an

interesting sell-back feature. Users determine the price they

want to pay and validity period (up to 30 days), and the system

will allocate the maximum amount of data or call mins, which

can be mixed and modified at any point of time. Any unused

data and call mins are automatically sold back and exchanged

for tapp credit at 65% of the original value.

Industry Focus

Malaysia Telecom

Page 5

Stock Recommendations

2018 outlook. Based on the guidance by mobile operators, we

expect industry service revenue to either be flat or decline by a

low single digit in 2018 as voice and SMS continued to be

cannibalised by rising adoption of data (~49% of revenue in

4Q17). The prepaid market should still be challenging for DiGi

given the headwinds in migrant workers segment, while Maxis

will suffer some revenue loss from the complete termination of

network-sharing agreement with U Mobile by the end of the

year. Celcom will focus more on cost-optimisation initiatives in

2018 in order to improve its EBITDA margin which is below

peers'. Lastly, we expect the award of the 700MHz spectrum

to be announced in 2H18, with the three mobile incumbents

getting equal share (2x10 MHz).

Domestic liquidity to support share price. Given the stable

outlook and lower risks on spectrum in 2018, we believe the

share prices of Malaysian telcos will continue to be well

supported by ample domestic liquidity, even though valuations

are at a premium relative to regional peers. We prefer fixed-

line operators due to their better growth prospects, with TM

being our only BUY call. The current weakness in TM's share

price, which could be due to uncertainties over GE14, offers a

good opportunity to accumulate.

Decent dividend yield. Domestic-focused operators such as

DiGi and Maxis are trading at around 11.6-13.3x CY18

EV/EBITDA, a premium relative to the regional average of 7.8x.

Given the ample domestic liquidity, we believe the premium

valuations can be sustained as long as dividend yields remain

decent and backed by strong free cashflow generation.

TM (BUY, TP: RM7.10). We remain optimistic that the rollout

of the High-Speed Broadband Phase 2 (HSBB2) project, Sub

Urban Broadband (SUBB) project, and Unifi Mobile services

(previously webe) would drive the long-term growth for TM, as

the company expands the coverage of its high-speed

broadband network to more areas. Our TP implies 7.7x FY18

EV/EBITDA and 26.7x FY18 PE.

.

EXHIBIT: Peer comparison table

Source: AllianceDBS

LC USD CY18 CY19 CY18 CY19 CY18 CY19 CY18 CY19 CY18 CY19

Axiata HOLD MYR 5.20 5.43 12,554 33.2x 29.7x 2.0% 2.5% 1.9x 1.9x 7.1x 6.6x 1.3x 1.0x

Maxis HOLD MYR 5.35 5.89 11,755 22.3x 20.8x 3.4% 4.1% 6.1x 5.8x 11.6x 11.6x 1.5x 1.4x

DiGi FULLY VALUED MYR 4.20 4.72 9,377 24.4x 24.3x 4.1% 4.1% 70.7x 70.7x 13.3x 13.1x 0.7x 0.7x

TM BUY MYR 7.10 5.63 5,406 22.2x 18.4x 4.1% 4.9% 2.7x 2.6x 6.5x 6.2x 1.3x 1.2x

TIME HOLD MYR 8.60 8.22 1,221 21.2x 18.4x 1.2% 1.4% 1.9x 1.8x 12.3x 10.8x nm nm

Singtel BUY SGD 4.30 3.35 41,519 12.4x 0.0x 5.9% 0.0% 1.8x 0.0x 7.8x 0.0x 1.2x #DIV/0!

Starhub FULLY VALUED SGD 2.20 2.45 3,216 18.1x 19.9x 6.5% 5.7% 42.9x 60.3x 9.0x 8.9x 1.6x 1.6x

M1 FULLY VALUED SGD 1.49 1.78 1,250 14.7x 16.7x 5.5% 4.8% 3.8x 3.7x 7.4x 7.6x 1.9x 1.8x

PT Telekom HOLD IDR 4200 4140 30,231 16.1x 15.5x 4.3% 4.5% 4.5x 4.4x 6.5x 6.3x nm nm

XL Axiata BUY IDR 3900 2720 2,106 21.5x 21.4x 2.8% 2.8% 1.3x 1.2x 4.2x 3.6x 1.1x 0.9x

Indosat HOLD IDR 6800 5550 2,185 26.5x 30.5x 0.0% 3.3% 1.9x 1.9x 3.5x 3.3x 1.1x 0.9x

Advance Info Service BUY THB 218.00 201.00 19,045 17.7x 16.6x 4.0% 4.2% 9.7x 8.1x 9.2x 8.3x 1.5x 1.3x

Total Access Comm FULLY VALUED THB 44.30 45.75 3,452 97.6x 24.8x 0.0% 2.0% 3.5x 3.2x 5.7x 5.9x 1.4x 1.5x

Average 19.2x 13.6x 4.1% 2.7% 8.9x 8.5x 7.8x 5.4x 1.0x 0.5x

Call LC

Target

PriceNet Debt/EBITDADivd yield

Current

Price

Market

CapP/E Price/ BVPS EV/EBITDA

Industry Focus

Malaysia Telecom

Page 6

Appendix

EXHIBIT: TM Unifi digital mobile prepaid plan

Source: Unifi mobile

EXHIBIT: Yoodo by Celcom Axiata

Source: Yoodo

Industry Focus

Malaysia Telecom

Page 7

EXHIBIT: Ookyo by Maxis

Source: Ookyo

EXHIBIT: tapp by DiGi

Source: tapp

Industry Focus

Malaysia Telecom

Page 8

AllianceDBS recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 12 Mar 2018 08:05:24 (MYT) Dissemination Date: 12 Mar 2018 08:07:18 (MYT)

Sources for all charts and tables are AllianceDBS unless otherwise specified.

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Industry Focus

Malaysia Telecom

Page 9

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Industry Focus

Malaysia Telecom

Page 10

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Industry Focus

Malaysia Telecom

Page 11

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Industry Focus

Malaysia Telecom

Page 12

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