Telecommunication: iPad Comes to Local Mobile Stores

THE BUZZ

Maxis and Celcom are expected to offer the new iPad with data bundled plans on 22 June, making both operators the first to offer the Apple tablet outright in Malaysia. While the new data plans should raise device sales and ARPU on the back of higher smartphone and tablet penetration, it would also exert more pressure on mobile EBITDA margin on the back of rising device subsidies. We maintain NEUTRAL on the telecommunications sector given: (i) the rising competition, (i) slowing revenue due to data cannibalization, (ii) the dilution in EBITDA margin arising from the focus on data and escalating device subsidies. We maintain our NEUTRAL calls on Axiata (FV: RM5.80), Digi (FV: RM4.07) and Maxis (FV: RM6.00), while TM, with no mobile exposure, remains our top sector pick and a BUY (FV: RM5.90).

OUR TAKE

Get your iPad from Maxis and Celcom. Maxis and Celcom are expected to unveil fresh data plans bundled with the new iPad on 22 June, marking the first outright sale of the Apple tablet by mobile operators in Malaysia. The new iPad is currently only available for purchase from Apple Online, Apple premium resellers and independent retail outlets. Going by the experience of the Singapore telcos, we expect the popularity and demand for the iPad to rise further with mobile operators selling the device, which is likely to be offered with good subsidy on contracts. The data bundled plans should raise overall ARPU, boosted by higher smartphone and tablet penetration. That said, with escalating device subsidies and the introduction of newer models including the iPhone 5 later this year, the EBITDA margin of the telcos should come under further pressure in 2H2012.

Digi not going down the same road? We think Digi may not follow the path of its rivals by selling the iPad as it is mindful of the returns from big screen devices and tablets due to the high subsidies accorded. Digi has deliberately slowed down its focus on big screen devices, opting instead to market its mobile internet plans in view of its weaker 3G coverage and to alleviate the pressure on margins. We believe Digi will turn more aggressive on big screen data when it has completed the upgrade on its 3G network to LTE by end-2012. Aside from Maxis and Celcom, U Mobile appears to be also channeling its focus on big screen devices with the recent bundling offer on Acer’s ultrabook. 

Tablet penetration set to increase. We expect the new iPad plans to spur demand for the iPad and increase tablet penetration in the country, which we estimate at low single- digit level currently. This compares with the 23% tablet penetration in Singapore, which actually went up significantly after all 3 mobile operators, Singtel, StarHub and M1, started offering the iPads on contracts. IDC expects the iPad to cement is dominance in the tablet segment by capturing a 62% share of the global tablet market in 2012 from 58.2% in 2011 while the share from the Android platform will slip from 38.7% in 2011 to 36.5% in 2012.

Switch to TM. We maintain our NEUTRAL call on the telecommunications sector given: (i) the rising competitive pressure, (i) slowing revenue growth due to data cannibalization, and (ii) the dilution in EBITDA margin arising from the focus on data and rising device subsidies. We maintain our NEUTRAL recommendations on Axiata (FV: RM5.80), Digi (FV: RM4.07) and Maxis (FV: RM6.00) while our top sector pick TM remains a BUY (FV: RM5.90) given that it has no mobile exposure.  The telco sector presents a safe haven for investors during the current volatile market environment.

Source: OSK