RAM Ratings, in a commentary on the sector, however, said profitability and margins were anticipated to remain flattish among players. It also said data consumption would continue to register strong growth.
KUALA LUMPUR: AmInvestment Bank Research has maintained its “neutral” call on the telecommunication sector given the continued intense competition in the cellular telecommunications (celco) segment.
It has “hold” recommendations on Maxis Bhd
and Digi.com Bhd.
“We have “buys” on Axiata Group Bhd and Telekom Malaysia Bhd (TM) due to the game-changing merger likelihood which will significantly enhance their earnings and market share trajectory,” AmInvestment said.
The research house said the telco sector’s 1Q2017 results were largely in line with the exception of Axiata, as Celcom was still struggling to turn around its prepaid subscriber decline.
“In fact, all three celcos experienced a continued decline in subscriber base, accentuated by the prepaid segment, together with a 3% sequential decline in sector revenue.
“However, Maxis registered lower depreciation while Digi bore lower effective tax rates, which enabled them to deliver in-line earnings. TM was also in line as its lower revenue was offset by decreased operating costs,” it said, adding that Maxis’ subscriber base nudges back to pole position.
The celco sector’s revenues declined 3% QoQ to RM5.3bil, driven largely by a 1.2mil decrease in subscriber base to 34mil while blended average revenue per user (ARPU) slipped slightly to 47 sen.
The prepaid segment accounts for 85% of the subscriber contraction, partly due to the clearing of dormant accounts.
Additionally, ARPU was relatively resilient since 1Q2016 but upside growth is constrained by the price-sensitive market.
Following U Mobile’s recent P38 plan, which offers unlimited voice calls to all networks and 4GB data at RM38/month, Digi has introduced a postpaid plan with unlimited voice at a price of RM50 per month.
“In our view, near-to medium-term earnings catalysts appear weak given the likelihood of further intensification in the celco wars with U Mobile and Digi raising the ante against Webe’s unlimited mobile data/voice/SMS pricing plans, priced at RM79 per month for the first SIM, RM69 a month-RM49 per month for second to fourth SIM,” AmInvestment said.
Currently, the only telco mostly shielded from this disastrous competition is Time dotCom with its fibre broadband strategically positioned with backhaul, enterprise and retail services to support rapidly expanding data demand.
“As TM continues to promote its relaunched webe service, albeit with a small estimated subscriber base currently, we do not discount the possibility of sector earnings cuts if incumbents further exacerbate the already intense competition for market share.
“Hence, we remain convinced that sector consolidation is impending, which is likely to be spearheaded by the re-merger of Axiata and TM. This will fundamentally reshape dynamics in customer convenience, unified services, marketing convergence and more significantly, cost savings,” AmInvestment said.
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