Upcoming spectrum reallocation may weigh on celcos’ leverage metrics
THE financials of Malaysian cellular operators (celcos) have remained resilient despite the introduction of spectrum assignment fees for 900MHz and 1800MHz bands last year.
The debt-to-OPBDIT ratios of all incumbent celcos rose to 1.81 times from 1.53 times the previous year, subsequent to the funding of spectrum costs with borrowings.
“In a maturing and slower growth environment, we expect the leverage indicators of incumbent celcos to gradually deteriorate, depending on factors such as intensity of competition in the industry and the magnitude of any larger-thanexpected capex, in addition to impending spectrum fees,” said Davinder Kaur Gill, RAM's CoHead of Infrastructure & Utilities Ratings.
While RAM expects mild contraction in the mobile industry's revenue growth in 2017, profitability and margins are anticipated to stay flattish.
Meanwhile, the fixed-broadband space continues to hold prospects for growth given the ongoing rollout of the High-Speed Broadband2 (HSBB2) and suburban broadband (SUBB) projects.
“Although we observed a slowdown in the growth trajectory of TM's fixed-broadband base, which stayed flat year-on-year in 2016 and 1Q 2017, substitutions of the lower-speed Streamyx for UniFi remained encouraging,” Gill adds.
From a regional perspective, Malaysian celcos continue to fare well against leading regional peers.
Despite stiff competition, the profitability of incumbents remains superior to that of players in neighbouring countries – the Malaysian average industry OPBDIT margin of 44.3 per cent is among the highest in the region.
“While incumbents have resorted to trimming costs via digitalisation and other cost optimisation means to weather tough times, cost management strategies may, in our view, be limited and fully exhausted over a longer period,” Gill explains.
RAM's commentary, Malaysian Telecommunications Sector – Spectrum reallocation a game changer published yesterday assesses key celcos and how the evolving operating landscape shapes their business strategies.
It also includes the firm's outlook on the market and a roundup of the industry's performance over the last few years.