(DNA Top 10 in 2014) A deeper look into Malaysia’s Big 3 mobile telcos in 1H2014

(Originally published on Sept 04, 2014)
Digital News Asia (DNA) continues reprints of our top 10 stories of 2014, in conjunction with the ‘DNA Top 10 of 2014’ contest. For details on the contest, click here.
 
This was one of DNA’s earlier efforts to give a breakdown on the Malaysian telco industry, to give our readers (and the industry) a better view on how the mobile telecommunications space is shaping up, and to allow us all to track its development over time.
 
Of course, the way we break down the numbers has also evolved, as we try to dive deeper. From now on, our half-yearly analysis will also look into how the players perform in the mobile Internet arena. – Goh Thean Eu
  • DiGi has outpaced its rivals in several key segments
  • Maxis clear leader in postpaid space, Celcom leads in total customer base
(DNA Top 10 in 2014) A deeper look into Malaysia’s Big 3 mobile telcos in 1H2014

MALAYSIA’S third largest mobile operator DiGi.Com Bhd outshone its rivals in the first half of financial year 2014 (1H2014).
 
The company, 49% owned by Norwegian telecommunications giant Telenor ASA, has gained market share in most of the key areas, partly at the expense of its rivals Maxis Bhd and Celcom Axiata Bhd.
 
Among the key indicators it has gained in are total revenue, prepaid and postpaid subscriber base, data revenue, and more.
 
Its performance has not been a ‘one-hit wonder’ either. Although it experienced hiccups in some quarters, DiGi has managed to consistently grow its revenue over the past 11 years.
 
In 2003, it reported revenue of RM1.71 billion, representing a market share of 16%. At the time, Maxis (then known as Maxis Communications Bhd) registered revenue of RM4.68 billion, and led the industry with a commanding 45% market share. Celcom, which had just become part of the Telekom Malaysia Bhd group, had revenue of RM3.87 billion.
 
[RM1 = US$0.32 at current rates]
 
Today however, DiGi’s annual revenue has exceeded RM6 billion and based on recent numbers, its market share has expanded to more than 29%.
 
“We think that DiGi will continue to gain revenue market share as its 3G (Third-Generation) coverage rises to 86% by year-end (compared with 80% in 2013), finally closing the gap with Maxis and Celcom,” CIMB Investment Bank analyst Kelvin Goh said in a recent report.
 
“This will not only allow it to drive higher data revenues but also put it in a position to gain new subscribers in areas where its network was previously not available.
 
“We expect DiGi to outperform its Malaysian telco peers in terms of revenue and earnings growth over the next three years,” he added.
 
During 1H2014, each of the telcos managed to lead in different market segments. Here’s a closer look:
 
Total revenue and market share

 
  1H 2013 FY 2013 1H 2014
Celcom RM3.99 bil (33.5%) RM8.03 bil (33.6%) RM3.86 bil (32.9%)
Maxis RM4.62 bil (38.8%) RM9.08 bil (38.2%) RM4.41 bil (37.6%)
DiGi RM3.30 bil (27.7%) RM6.73 bil (28.2%) RM3.46 bil (29.5%)

 
For the first half ended June 30, 2014, Maxis continued to lead with a 37.6% share. The company, controlled by billionaire T. Ananda Krishnan, recorded revenue of RM4.4 billion, a slight decline versus the RM4.6 billion in the first half of 2013.
 
Total revenue comprises sales of mobile devices, as well as revenue from mobile services such as voice, text messages and data.
 
While Maxis still has an approximate five percentage point lead against its closest rival, the ‘star performer’ in 1H2014 was DiGi.
 
During the first half, DiGi’s revenue increased by 5% to RM3.46 billion, mainly driven by its mobile Internet and broadband segments.
 
For the first half ended June 30, it had 4.27 million Internet subscribers, a 25% increase from the 3.41 million in 1H2013.
 
1H2014 also saw a decline in Celcom’s revenue, partly driven by the IT and network problems it encountered in the second quarter.
 
Celcom has been conducting an IT transformation programme, and the transformation process has affected its customer acquisition momentum as well as confidence, Axiata Group Bhd chief financial officer Chari TVT told a media briefing last week..
 
“The weak performance at Celcom caused management to revise down its revenue growth guidance to a mid-single digit for FY2014 (from the previous guidance of high single-digit growth), although EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) growth guidance is maintained at 1.8%,” said Foong Choong Chen, CIMB Investment Bank analyst.
 
Prepaid revenue and market share

 
  1H 2013 1H 2014
DiGi RM2.14 bil (33.6%) RM2.26 bil (35.2%)
Celcom* RM2.11 bil (33.2%) RM2.21 bil (34.5%)
Maxis RM2.11 bil (33.2%) RM1.94 bil (30.3%)

As at the first half of last year, all three players had almost equal revenue share in the prepaid segment. However now, a year later, it appears that DiGi is set to increase its lead in this segment.
 
With the Goods and Services Tax (GST) to be implemented in Malaysia next year, analysts are optimistic that the GST would pave the way for continued revenue growth over the near-term.
 
“DiGi will also be the biggest beneficiary of the ability to pass the 6% GST to prepaid users (effective April 1, 2015), as it has the highest mix of prepaid revenue,” said CIMB Investment Bank’s Goh.
 
In 1H2014, Maxis’ prepaid revenue market share declined to 30.3% from 33.2% in 1H2013. The decline was pretty much within most analysts’ expectations, given its ongoing transformation exercise under new chief executive officer Morten Lundal.
 
In terms of prepaid subscriber base, Celcom, which captured the lead at the end of last year, continues to hold the No1 spot with 10.21 million prepaid subscribers.
 
The first half of 2014 also saw DiGi surpassing Maxis with 9.21 million prepaid subscribers. Maxis, on the other hand, saw its prepaid subscriber base decrease by approximately 500,000 to 9.04 million.
 
“[The] prepaid subscriber base decline was mainly due to churning from Hotlink Youth Club and legacy plans’ expiration, but its new prepaid plan (#Hotlink) base is growing with better retention,” Public Investment Bank analyst Lee Wee Sieng said in a report.
 
(Disclaimer: Celcom’s prepaid revenue is derived by taking the number of its prepaid subscriber base and then multiplying it by its prepaid average revenue per user)
 
Postpaid segment

 
  1H 2013 subscriber   1H 2014 subscriber   1H 2013 revenue   1H 2014 revenue  
Maxis 3.37 mil 3.36 mil RM2.01 bil RM1.97 bil
Celcom 2.92 mil 2.92 mil RM1.53 bil* RM1.49 bil*
DiGi 1.69 mil 1.70 mil RM859 mil RM860 mil

This is one area where Maxis was still able to display dominance. During the first half, Maxis had a pool of 3.36 million postpaid subscribers, compared with Celcom’s 2.92 million and DiGi’s 1.69 million.
 
Maxis also recorded a revenue of close to RM2 billion from its postpaid business, giving it a commanding 45.6% market share, followed by Celcom’s 34.4% and DiGi’s 20%.
 
In terms of subscribers, Maxis had a 42% market share, followed by Celcom with 36% and DiGi with 21%.
 
“The postpaid segment remains a bright spot for Maxis, thanks to its lead in rolling out LTE (Long-Term Evolution) coverage,” AllianceDBS Research’s Toh Woo Kim said in a report.
 
(Disclaimer: Celcom’s postpaid revenue is derived by taking the number of its postpaid subscriber base and then multiplying it by its postpaid average revenue per user)
 
Capital expenditure (capex)
(DNA Top 10 in 2014) A deeper look into Malaysia’s Big 3 mobile telcos in 1H2014 
Based on the 2014 estimated capex by the incumbents, as well as the amount of capex already invested in the first half, one thing is certain: There will be heavy investments in the sector in the second half of this year.
 
Maxis announced that it is expected to spend RM1.1 billion in capex this year, while Celcom is expected to invest about RM1 billion and DiGi will spend RM900 million.
 
The money is expected to be used to upgrade and to expand their networks.
 
In 1H2014, Maxis has only spent RM273 million in capex, which means more than RM800 million is expected to be spent in the second half. During the same period, Celcom spent some RM300 million, while DiGi’s capex was at RM395 million.
 
Related Stories:
 
Malaysia’s mobile space: No 1 position up for grabs
 
Celcom CEO: 2014 will be the ‘Year of Battles’
 
Axiata CEO optimistic despite mobile competition from TM

 

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