Analysis: Telcos end 2023 on high note

KUCHING: Most telecommunication players ended the year on a high note, as results from the recently concluded fourth quarter of 2023 (4Q23) reporting season mostly exceeded expectations of Kenanga Investment Bank Bhd (Kenanga Research).

Aside from Axiata Group Bhd (Axiata), the research house saw that all telcos reported core net profit growth in FY23, mainly driven by service revenue expansion and absence of Cukai Makmur.

“In particular, for Telekom Malaysia Bhd’s (TM) case, its earnings received a major boost from recognition of tax credits.

“On the flip side, all telcos were weighed by cost pressures that resulted in compressed or flattish margins for earnings before interest and tax (EBIT).

“This mainly emanated from accelerated depreciation (for the local players) and heightened opex.

“In the case of Axiata, depreciation costs surged in line with Link Net’s aggressive expansion of home passes.”

Meanwhile, Kenanga Research saw that FY23 service revenue growth for the domestic operators was mainly propelled by subscriber base expansion across the board.

Fixed and mobile operators ended the year with an enlarged subscriber base in 4Q23, except for Celcom. The latter was attributed to a clean-up of its prepaid base in 4Q23 that led to the removal of non-revenue generating subscribers.

“Nevertheless, for the broader industry, total subscribers for the three major mobile operators expanded by a healthy four per cent year on year (y-o-y) to 32.9 million in 4Q23.

“This was mainly led by Maxis Bhd’s (Maxis) subscriber net adds of 442,000 for prepaid and 361,000 for postpaid. In particular, the latter’s expansion was attributed to the introduction of postpaid plans with lower entry price points (starting from RM30 per month).”

On the other hand, for mobile ARPUs, there was broad based y-o-y decline across the board (except for Celcom’s prepaid segment).

Weakness in Maxis’ 4Q23 ARPUs were attributed to postpaid - following introduction of lower entry level plans; and prepaid - on the back of stiff competition.

Whereas for CelcomDigi Bhd, its postpaid segment was weighed by lower interconnect rates, on-demand data and bulk SMS traffic.

“In the near term, we believe that 5G monetisation opportunities are limited to the enterprise segment and high net worth retail customers.

Recall that regulatory requirements inhibit telcos from imposing additional access charges for 5G services.

“However, this does not stop telcos from extracting higher ARPUs from users with high spending capacity.

“Hence, telcos may boost ARPUs from its new or revamped product plans via tiered speeds and caps; 5G data quotas; and fair usage policies that throttle speeds after limits are exceeded.

“Therefore, this may compel customers to upgrade to expensive plans that correspond to faster speeds, as well as higher thresholds for FUP caps and 5G quota.”