Competition to bite into telcos’ revenue growth

Analysts predict lower single-digit expansion

PETALING JAYA: Competition will continue to put pressure on revenue growth for telecommunications (telco) service providers this year, with analysts expecting revenue growth to be in low single digits in percentage terms.

About the same levels of revenue growth were registered last year, with contribution to growth this year to continue coming from the post-paid segment, broadband and applications.

The migration from pre-paid to post-paid has been healthy, as more users migrate to post-paid with celcos aiming to push the migration further.

While most of the telco players expect between a 3% and 4% revenue growth, Axiata Group Bhd, which has a strong regional presence, expects 6.3% and an earnings before interest, taxes, depreciation and amortisation of 5.8%.

Competition remains a feature, but some analysts do not foresee major price wars erupting that could escalate extra costs for the telco players.

Nor do they believe that the rebranding of Telekom Malaysia Bhd’s (TM) unifi mobile (previously webe) will disrupt the market enough, although all players remain cautious. Analysts also do not expect U Mobile Sdn Bhd, which has plans to list, to be as disruptive as in the past.

While telcos will benefit from there being no price wars, this would not benefit consumers, as price wars drive prices lower.

However, the possible entry of Broadnet Network Sdn Bhd could jolt the broadband space.

This might explain the sudden aggressiveness of TM and its declaration of the availability of over 1.8 million ports, implying that there is a surplus of access points to serve up to 2.88 million customers in major towns and areas.

“The overall earnings for the sector for 2017 were flattish and we expect the same this year.

“The players are cautious and their forecast is for revenue to be in the low single-digit region, and that has been the trend for some time now,” said JF Apex Securities Bhd analyst Lee Cherng Wee.

The price competition will not be like in the past and he does not expect prices to come down, but players will add value in terms of offering more data and bundling products and services.

For the financial year ended Dec 31, 2017, TM earned more money than Axiata.

TM’s net profit was RM929mil in 2017 versus Axiata’s RM902mil, despite the latter recording a huge jump in net profit when compared to 2016 from a turnaround in contribution from its units.

Maxis Bhd turned in RM2.1bil in net profit for 2017 with its ongoing turnaround and maintained a growth momentum from a year earlier.

Digi.Com Bhd’s net profit was lower at RM1.4bil from RM1.6bil in 2016, dragged down by lower margins.

But with the addition of more post-paid users compared to the past, analysts have a positive outlook on the company.

Dividend-wise, TM paid more in dividend at 21.50 sen a share compared to Axiata’s 8.50 sen.

Even Maxis and Digi’s dividend payouts of 20 sen and 18.80 sen a share, respectively, were higher than that of Axiata.

TM remains a favourite among some broking houses because of its broadband business, while Axiata remains a good proxy for the regional telcos.

If it decides to list its tower business held via edotco, it would be a potential catalyst for a re-rating.

For 2018, analysts believe Maxis’ net profit will be in the range of RM2bil and earnings per share at 26 sen a share, Digi at RM1.5bil and 19 sen, Axiata at RM1.4bil and 16 sen, and TM at RM879mil and 23 sen, as they expect TM to spend more money on its cellular business.