Malaysia Daily: In-Depth Analysis on Key Companies and Sectors

Date: 10 December 2024

Broker: UOB Kay Hian

Telecommunications Sector in Malaysia: Navigating a Competitive Landscape

The telecommunications sector in Malaysia has shown resilience with a 4% year-on-year growth in earnings for 9M24. This growth can be attributed to a 2% increase in service revenue and strong demand for home broadband services. Notably, Maxis stood out with a 4% growth in service revenue, driven by its robust postpaid and fixed-mobile convergence strategy that resulted in an 8% year-to-date net profit increase.

Despite stiff competition in the home broadband market, primarily due to aggressive bundling services from CelcomDigi and Maxis, the sector maintained its momentum. Key upcoming events in 1H25 include fixed-line price competition, the rollout of a second 5G network, and potential synergistic savings from the CelcomDigi merger.

CelcomDigi remains the top pick, with expectations of increased gross synergy savings in 2024 and beyond. The company is poised to benefit from the government’s exit from DNB and the potential partnership with U Mobile for the second 5G network.

Press Metal Aluminium Holdings: Vertical Expansion for Long-Term Growth

Press Metal Aluminium Holdings (PMAH) is strategically positioning itself for prolonged multi-year growth through vertical expansion. The company is developing a new alumina refinery in Indonesia, listing PT Bintan to enable further capacity expansion, and enhancing its VAP production for margin improvement. These initiatives are expected to drive significant earnings growth, with a projected 12% increase in 2025 and 17% in 2026.

PMAH’s new integrated alumina refinery in Indonesia, a joint venture with Alakasa Alumina Refineri and others, will have an initial capacity of 1.0-1.2 million metric tonnes annually. This project, expected to be completed in 2.0-2.5 years, is anticipated to contribute RM250m-350m in profit through PMAH’s equity stake.

The listing of PT Bintan through Nanshan Aluminium International Holdings on the Hong Kong Stock Exchange will further enhance PMAH’s value and enable direct capital raising for expansion. The company is also expanding its VAP production, with expectations for VAP volume to reach 60% of total sales by the end of 2025.

With a BUY recommendation, PMAH is targeting a price of RM7.00, reflecting the company’s strategic growth initiatives and strong market positioning.

Market Risks and Investment Outlook

The telecommunications sector faces potential risks, including intense competition and economic downturns that could impact service revenue. However, the sector’s current valuation at 6.5x EV/EBITDA is considered fair, factoring in these challenges.

For investors, Axiata Group and CelcomDigi are highlighted as top picks, with CelcomDigi expected to benefit from merger synergies and potential capital management strategies.

Overall, Malaysia’s telecommunications and materials sectors are poised for growth, supported by strategic expansions and market demand. Investors are advised to consider these opportunities while being mindful of the inherent risks.