KUALA LUMPUR: The relatively high profit margins enjoyed by telco operators leaves room for a further decline in their share prices, says PublicInvest Research.
In the research house's coverage of the sector, it said the the operating landscape for both mobile and fixed line operators is expected to be challenging moving forward.
The government's implementation of the Mandatory Standard on Access Pricing (MSAP) is expected to reduce wholesale prices for network service by 8.7% to 12.1% between 2018 and 2020.
According to the Communications & Multimedia Ministry, the MSAP should translate to some 25% decline in retail broadband prices by end-2018.
"As the national telco service provider, Telekom Malaysia (TM) currently monopolises the fixed line fibre network but lower wholesale prices as well as the possible opening of TNB’s fibre network could mean greater competition in the future," said PublicInvest.
It said cost optimisation will be key to players due to falling revenues but Digi and Maxis, with track records in cost management, may have limited scope in extracting cost efficiency going foward. In contrast, TM and Axiata are high-cost operators.
"We downgrade our ratings on Maxis and DiGi to Underperform and Neutral with a revised TP of RM5.18 and RM4.80 respectively. However, our Neutral calls for Axiata and TM remain unchanged but with TPs reduced to RM4.54 and RM3.40 respectively."
It added that there is downside to Axiata in the event of a bidding war for its M1 associate company in Singapore.
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