PETALING JAYA: The three-month temporary period where telecommunication companies (telcos) are giving extra talk time and SMS to their prepaid subscribers are unlikely to bite into their margins as both categories have been providing steadily declining contributions to revenue, said M&A Securities.
It said this had been the trend for several years, with declining call and text contributions to revenue in contrast to rising data and Internet usage contributions.
“At the end, should subscribers fully utilise the extra calls and SMS given, it may provide some relief to telcos to potentially lift their average revenue per user (arpu),” said its research team in a sector update report.
To recap, telcos have agreed to the three-month transitional measure due to heavier consumer burden as a result of the goods and services tax (GST), whereby all prepaid subscribers who reload RM5 and above, a value that is higher than the GST addition will be given free talk time and SMS.
In an example given by HLIB Research, it said a subscriber would get five voice minutes and 5 SMS for every RM10 top up and 10 voice minutes and 10 SMS for every RM20 top up.
This will apply for three months beginning April 3, with the Customs Department expected to further negotiate with telcos for a permanent solution going forward.
M&A Securities said the telecoms sector was the biggest winner with the GST’s implementation as players were able to pass the 6% back to their subscribers, adding that their financial year 2015 bottomline would be lifted by 3% to 5% depending on their subscriber base.
“We found that DiGi.Com Bhd (its top pick with a “buy” call and target price of RM7) is the clear winner as its prepaid subscribers form 83% of their total subscribers vs Celcom Axiata Bhd (70%) and Maxis Bhd (77%) as at financial year 2014,” it said.
As for telcos agreeing to drop their broadband price by at least 6%, M&A Securities said it foresaw that the lower price of broadband would not bring any significant impact to telcos as rising affordable smart phones in the market would be able to cover the shortfall.
It maintained its “overweight” call on the sector as fund managers were looking for a safe haven to rebalance their portfolios in bleak equity market outlook, with solid dividend payments able to offset lofty valuations.
HLIB Research said that with the GST boost adjourned by a quarter, DiGi was expected to enjoy the most with 4.7% in earnings uplift, followed by Maxis and Celcom’s parent, Axiata Bhd with 3.9% and 3.2% respectively, provided usage and competition remains status quo.
It maintained a “neutral” call on the sector with its top picks being Axiata with a “buy” call and target price of RM7.52 and TdC with a “buy” call and target price of RM6.13.
AmResearch said that on top of the three-month transitional period, there was always a risk of price elasticity in the prepaid segment, which might drive downward rate adjustments and counter the benefits of the tax pass-through.
It noted that if the GST failed to be passed on, DiGi (with a “hold” call and fair value of RM6.50) would be the worst hit in terms of earnings expectations.
“On an annualised basis, every one percentage point prepaid GST pass-through is estimated to impact financial year 2015 forecast bottomline by 1.7%, 1.5%, and 1.3% for DiGi, Maxis (with a “hold” call and fair value of RM6.70) and Axiata (with a “buy” call and fair value of RM7.90) respectively,” it said.