Telco sector can be derated on resumption of revenue decline

AmInvestment Research said the telco sector can be derated on resumption of revenue decline given the tight competition amid a decreasing subscriber base.

“Besides the existing mobile wars, the fixed broadband segment under TM’s unifi, Maxis’ Home Fibre and Time dotCom faces daunting prospects of declining ARPUs amid the government’s plans to develop a data-intensive socio-economy,” it said.

It said a sector re-rating would require catalysts for stronger revenue growth prospects. and any significant organice revenue or margin growth improvement is unlikely over the next 12 months.

AmInvestment maintained neutral on the sector with its only “buy” call being Axiata given its low EV/Ebitda of 5x, way below its two-year average of 8.1x, Maxis’ 12x and Digi’s 14x.

Recapping the sector’s latest financial earnings results, AmInvestment said 2Q2018 came in largely within expectations with Digi, Maxis and Time dotCom generally in line despite the disappointment from Telekom Malaysia.

AmInvestment Research said TM was dented by the impact of the mandatory standard access pricing regime on its wholesale revenue together with lower universal service provider income, government/enterprise projects and submarine connectivity sales.

As for Axiata, excluding consolidation impairments from the Idea Ceullular-VOdafone merger, its bottom line was buoyed by the absence of Idea-drive associate losses.

The research house said the total subscribers continued to contract amid tight competition and ongoing SIM consolidation although service revenue was stabilised by a gowing postpaid segment.

The bulk of the year-on-year decline stemmed from Maxis, followed by Digi and Celcom.

Maxis, however, remained the revenue leader while Digi commanded the largest subscriber market share at 36%.

“Digi’s pole position since 1Q2016 stemmed largely from its strength in the prepaid segment, underpinned by the migrant population. However, Maxis is stronger in the postpaid segment with an ARPU and subscriber base which are 24% and 14% respectively higher than Digi’s.”

AnInvestment also noted the rising fibre broadband competition in response to the government’s agenda to cut broadband prices by 25% by year-end.

“Maxis recently re-priced its fibre broadband plans for both consumers and businesses with unlimited data quotas and offering speeds of up to 100Mbps at prices 36%–65% lower than previous similar plans beginning from 13 this month,” it said.

In comparison, TM’s Unifi aims to raise the speed of its RM139/month package from 30Mbps to 300Mbps at RM0.46/Mbps while the more affordable proposition at RM79/month (with a quota of 60GB) at 30Mbps for all households.

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