PETALING JAYA: The telecoms sector will remain highly competitive as players compete on short-term packages to win more market share in expectations of earnings recovery in the second half of the year.
This is because U Mobile’s offer remains a notch more attractive than the other players, said CGS-CIMB Research in its latest report.
Since its inception, U Mobile has been seen as a major disruptor in the mobile industry, offering packages and pricing that attract a wide segment of the market – though its overall market share cannot compare to Maxis, Celcom and Digi.
CGS-CIMB expects the telcos mobile service revenue to inch up 0.5% year-on-year (y-o-y) in financial year 2021 (FY’21) after declining 6.5% y-o-y in FY’20 due to Covid-19, tight competition and a 49% cut in interconnection rates.
“While we see some revenue recovery in FY21 mostly after the negative impact of store closures in the second quarter of 2020 (Q2’20) due to the first movement control order (MCO), we believe that market growth will remain challenged by persistently tight competition,’’ it said.
For Q2’21, the mobile industry service revenue rose 3.8% y-o-y mainly on Q2’20’s store closures. It grew 1.5% quarter-on-quarter (q-o-q), partly aided by the government’s Jaringan Prihatin programme and possibly some market share gains by the telcos.
The report said Celcom’s RMS continued to rise by 0.5 percentage point q-o-q to 31.4% in Q2’21, at the expense of both Digi and Maxis, which saw their RMS eased 0.4 and 0.1 percentage points q-o-q to 30.4% and 38.2% respectively.
“Notably, Celcom has now overtaken Digi as the mobile operator with the second largest RMS, after ceding this position in Q1-Q4’20,” it added.
In the fixed-line business, Telekom Malaysia Bhd’s (TM) Q2’21 revenue eased 1.7% q-o-q largely due to seasonality and some full-MCO impact, but rose a good 6.6% y-o-y. Positively, it posted another record Unifi net addition, it said.
The research house has a ‘‘neutral’’ stand on the sector and still prefers the fixed to mobile segment, due to the former’s better revenue growth prospects, more benign competition and enticing valuations. Its top stock pick for the sector is TM.
For TM, it expects revenue to turn the corner and rise 5.3% y-o-y in FY’21 (FY20: -5.2% y-o-y).
This may be led by robust demand for fibre broadband (relatively low penetration and supported by TM’s accelerated fibre rollout), wholesale fibre leasing (including potentially to Digital Nasional Bhd for its 5G rollout), and data centre and cloud services (over-the-top firms locating their content locally and cloud migration of public data under MyDigital).
“We forecast FY’21 core earnings per share to climb a steeper 17.9% y-o-y, as we see operational expenditure rising only marginally thanks to its (TM) cost-saving initiatives,’’ it added.
The key upside risk cited is stronger-than-expected FY’21-22 earnings delivery and downside risks include worse-than-expected competition and adverse regulatory developments for the sector.