Incumbent fixed operator, Telekom Malaysia Bhd's entry into 4G market may put more pressure on mobile phone operators.
KUALA LUMPUR: Fitch Ratings foresees competition in the Malaysian mobile sector persisting amid weak consumer spending and the entry of incumbent fixed operator, Telekom Malaysia Bhd
(TM, A-/Stable), into the 4G market.
The international ratings agency said in a special report on Friday it expected competition in the fixed-line and fibre broadband segments to remain moderate.
“Fitch forecasts revenue to grow by a low-single-digit percentage, driven by expansion in fibre rollout. The average operating EBITDA margins of telcos are likely to shrink by 70bp-100bp, due to revenue pressure and cost increases.
“Expansion in the long-term evolution (LTE) network and fibre broadband will drive capex investments.
“Fitch expects this to keep TM's funds flow from operations (FFO)-adjusted net leverage around 1.9 times to 2.0 times, close to Fitch's negative guideline,” it said.
The ratings agency anticipates limited upside on the sector outlook as the ongoing weakness in the ringgit and intense competition are likely to weigh on operating cash flows.
“Capex and dividends will remain high, which ensure that credit metrics are much more likely to deteriorate than to improve.
“However, a significant easing in competition which improves margin and cash flow from operations could lead to the sector outlook turning stable, from negative,” it said.
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