Range-bound trade for telcos as good news balances out the bad
KUCHING: Muted earnings and heightened competition within the telecommunications sector could potentially be neutralised by impending mergers and acquisitions (M&As) as well as index weighting position.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) believed that local incumbents could potentially be trapped in range- bound trading and mirror the prior year’s performance, barring any unforeseen circumstances.
This is in view of the comparable earnings’ guidance provided by all players as well as the challenges facing the industry.
Based on the research arm’s recent price earnings ratio (PER) study, Telekom Malaysia Bhd ( TM) and Maxis Bhd ( Maxis) appear to have the greatest upside while Axiata Group Bhd (Axiata) is currently trading at high PER range.
Meanwhile, for Digi.Com Bhd (Digi), Kenanga Research noted that the group’s upside appears limited from here.
“Having said that, while both companies (TM and Axiata) have deemed the potential merger news is speculative, trading sentiment could potentially be lifted should any solid discussion being developed in the future,” it said.
Kenanga Research highlighted that the recent release of the industry incumbents’ financial year 2017 (FY17) key performance indicators (KPIs) suggested that any opportunity on the top-line could be largely offset by the costly customer acquisition and weak consumer sentiment.
“Data segment remains the key growth area where celcos continued to spend heavily and strengthen their network coverage to capture opportunities from the growing internet demand,” the research arm said.
It added that while the current competition landscape appears somehow stable for now, the race, however, is expected to be elevated in the second half of 2017 (2H17) after the full implementation of the 900/1,800 megahertz (MHz) spectrums.
Kenanga Research noted that TM is meanwhile, expecting a slightly higher top-line annual growth of 3.5 to four per cent with EBIT maintained at FY16 level.
The research arm further noted that the EBIT margin pressure is expected to come from Webe as well asthehigh-speedbroadbandphase2 (HSBB2) and sub-urban broadband (SUBB) project rollouts.
According to Kenanga Research, ley events slated for the year include potential spectrum reallocation of the 700, 2,300 and 2,600 MHz spectrum bandwidths -- which are due for renewal in current year 2017 (CY17) – and intensified mobile network battle in 2H17.
“Besides, with increasing operational costs, spectrum scarcity and escalated data demand, operators may need to consider collaboration to widen the network sharing, business process outsourcing, as well as to complement their connectivity value proposition with more Digital contents.