Telco giants’ shaky 3Q results reflect industry shake-up

The telecommunications sector’s future continues to shudder due to uncertainties with major service providers pos-ting declines in their third quarter results ended Sept 30, 2018 (3Q18), but smaller players, seen as nimble and progressive, delivered improved performances.

Dominant fixed-line operator Telekom Malaysia Bhd (TM) posted its first quarterly net loss in 10 years, while Maxis Bhd and Celcom Axiata Bhd — two of the “Big 3” telcos — saw declines in 3Q18 earnings on squeezed margins in the prepaid business.

High-rise broadband service provider, TIME dotCom Bhd, reported a near-threefold jump in 3Q earnings due to revised industry pricing leading customers to jump ship in light of more competitively priced broadband packages available in the market.

Competition in the telco sector has stiffened following regulatory changes such as the implementation of the Mandatory Standard on Access Pricing enforced starting June 8 alongside the government’s call for cheaper and faster broadband.

In a recent research note, CIMB Investment Bank Bhd stated that it expects flattish industry mobile service revenue growth for the next three years, as intense competition re-emerges at some point.

Mobile industry service revenue slid 1.2% year-on-year (YoY) and 0.5% quarter-on-quarter (QoQ) in the 3Q after a “decent” 2Q18.

Malaysian telcos are trading at an 11% premium over the Asean average 2019F enterprise value/operating free cashflow of 13.5 times, with decent 2018-2019F yields of between 3.5% and 3.8%.

Downside risks include the upcoming auctions for the 700MHz/2,600MHz spectrums that could see higher than expected final prices amid more intense competition.

Telco giants’ shaky 3Q results reflect industry shake-up

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