KUALA LUMPUR: Affin Hwang Capital research is neutral on the telco sector after it emerged from a combined net loss of RM1.6bil in 2018.
It said in a research note that three of the four telcos, except Maxis, are expecting growth in operating profit driven by better cost controls and margin improvement.
"The capex outlook is mixed: Maxis has allocated a higher budget for expansion into new segments while TM is expecting lower spending," it said.
It has a hold call on Digi, which remains its top pick for its 4.5% yield. It has a hold call on TM, a hold on Axiata and a sell on Maxis.
According to the research house, stagnation in subscribers and stiff competition has eroded cellcos' profit margins while regulatory challenges and compeittion affected Teleko Malaysia's profitability.
In 2018, subscribers for Malaysia's cellular services grew by only 0.1% to 42.4 million with all top three cellular providers seeing declines in the number of subscribers.
"Celcom had the largest decline of 4.9% yoy; the others (U-Mobile, TM, MNVOs) recorded a 8.2% gain in subs and grew their market share to 25.4% (from 23.5% in 2017)," said Affin Hwang.
"In the fixed broadband market, TM also saw a decline in subscribers and market share," it added.
In addition, the telcos also had to enture regulatory changes, technology shifts and macro headwinds.
"Operationally, the telcos are undertaking various measures to control costs (i.e., efficiency improvements via digitisation, rationalising staff costs, lowering sales and marketing); these measures should help cushion the impact of external issues but are unlikely to lift profit margins," said Affin Hwang.
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