Weak results for telcos in 1Q16 due to lower revenues
KUCHING: The telco sector registered weak financial results in the first quarter of 2016 (1Q16) as services providers posted lower revenues compared with the same quarter last year.
AmInvestment Bank Bhd ( AmInvestment Bank) in a report said the telco sector’s revenues contracted by five per cent quarter-on-quarter (q-o-q) to RM5.4 billion.
This was largely from Celcom Axiata Bhd’s ( Celcom) RM155 million decrease due to lost contributions from value added services (VAS) and decreasing migrant subscribers amid pressures from increased competitions.
AmInvestment Bank said Celcom was affected by customers’ complaints of spamming arising from content providers’ VAS.
At the same time, Digi.com Bhd (Digi) experienced lower topline contributions from lower average revenue per users (ARPUs) while Maxis Bhd’s (Maxis) continuing contraction in subscriber base eroded its revenue.
Among the three big cellular companies (celcos) Maxis, Celcom and Digi, AmInvestment Bank observed that subscriber base continued to decline for the third consecutive quarter as of 1Q16, by one per cent q-o-q to 36.7 million subscribers.
Nonetheless, Digi has managed to gain net subscribers by adding 211,000 customers in 1Q16 but Maxis has lost 384,000 customers and Celcom 175,000 customers from the prepaid segment.
“The reduction in subscriber base stemmed from further inroads made by another telco player, U Mobile Sdn Bhd and service termination from users of multiple mobile numbers, under an environment of rising costs of living and uncertain economic outlook,” it said.
Despite the weaker revenues in 1Q16, AmInvestment noted celcos still managed to improve their 1Q16 earnings before interest, tax, depreciation and amortisation (EBITDA) margins by 2.2 percentage pointts q-o-q, which resulted in normalised net profit increased by five per cent q-o-q.
The higher normalised net profit was due to lower operational costs while Maxis has benefited from lower international direct dailing (IDD) traffic costs and sales or marketing expenses.
Additionally, Digi also showed a higher q-o-q profit margin and profit from lower depreciation charges and decreased direct overheads cost.
“While Maxis and Telekom Malaysia Bhd’s (TM) bottomlines were within expectations, Axiata Group Bhd’s and Digi’s normalised earnings were negat ively impacted by lower ARPU amid intense competition and ongoing contraction in voice and short message service (SMS) revenues.
Therefore, it noted the telco sector’s 1Q16 results were weak due to continuation of declines in mobile revenues, dampened by lower subscriber base and average revenue per users (ARPU).
Thus, AmInvestment reiterated its ‘neutral’ view of the sector given the tightening mobile competition.