The market cap of ASEAN TMT stocks is ~US$435bn, with telcos accounting for ~35% of value (more than 50% excluding Sea). 20 private TMT companies, with an equity value of ~US$95bn, have disclosed their intention to list. The impending listings are likely to transform the investable ASEAN TMT universe while presenting risks of rotation away from telcos. Telcos successful in scaling their digital assets could see valuation support over the mid-to-long term. GLO (N), TEL (OW), ST (OW) and AXIATA (N) have large digital assets.

 Digital economy, impending listings to transform investable ASEAN TMT universe, reduce weight of telcos. The top ~75 private TMT companies are valued at over US$120bn, based on the last reported valuation. 20 companies, with an equity value of ~US$95bn, have disclosed intentions to list. The impending listings and potential index inclusion presents risks of rotation away from telcos. The listing of the five largest private TMT companies at last reported valuation would decrease telecom weight in the listed ASEAN TMT universe to 30% from 35% (>50% ex-Sea Ltd) at the end of 2Q21. The growth of the digital economy resulted in China TMT valuations increasing by ~800% over 2009-20 to ~US$3tn, and the contribution of telcos declined to 9% at YE20 from 81% at YE09.

 Telcos successful in scaling their digital assets could see valuation support.

Globe (N) has a 40% stake in Mynt, the largest fintech business in the Philippines, which is expanding its use case from payments to online lending and distribution of financial products. PLDT (OW) has the largest stake in PayMaya, the leading merchant acquirer in Philippines. Singtel (OW) aims to launch digital banks in Singapore and Malaysia. Axiata (N) has aspirations to expand its financial services under ADS to digital banking.

 Large TAM, low penetration supports growth of ASEAN digital services.

We calculate an FY20-25 GMV CAGR of ~30% for ecommerce and food delivery. Third-party online payments can grow at faster rates and unlock growth in online lending and financial product distribution. In our view, the growth in online services will be enabled by reducing barriers to internet access with improved mobile networks, proliferation of smartphones, and fall in cost of access. We see system-wide network effects as we believe consumers that adopt one internet service are likely to try others too. We calculate that total consumer spending on major internet services increased to US$143bn in 2020 from US$40bn in 2017.

 Regulatory support for growing digital economy comes in different forms.

Indonesia has created a roadmap to improve digital inclusion for 90m unbanked people and 63m micro, small and medium enterprises (MSMEs). Malaysia aims to grow its digital economy to 22.6% of GDP by 2025 by supporting digitalization, infrastructure, and investments. Thailand is offering investment incentives. Philippines is launching digital national IDs, which can foster growth in financial services, and boosting the use of digital payments.