Analysts remain cautious on telecommunications sector’s earnings outlook
KUCHING: RHB Research Institute Sdn Bhd (RHB Research) remains cautious on the telecommunications sector’s earnings outlook in 2017, on expectations of stronger acquisition and retention activities by the mobile operators ahead of the spectrum re-assignment.
According to RHB Research, all three mobile operators have earlier accepted the offers from the Malaysian Communications and Multimedia Commission (MCMC) for the 900 megahertz (MHz)/1800MHz spectrum with lump sum payments made on November 1, 2016.
“We believe competition in the mobile space would remain elevated due to the more-equitable spectrum re-allocation (900MHz and 1800MHz) among the four operators in Malaysia,” it said.
The research house added that Digi.com Bhd (Digi) and U-Mobile Sdn Bhd (U Mobile) would be looking to grab further market share being net beneficiaries of the refarming exercise while Maxis Bhd (Maxis) and Celcom Axiata Bhd (Celcom) are likely to intensify marketing campaigns and sustain their network investments to retain subscribers.
RHB Research noted that both Celcom and Maxis tapped the debt market to fund the spectrum fees while Digi relied on bank borrowings.
“This was within expectations,” it said in a strategy report recently.
In RHB Research’s opinion, Maxis would see the largest negative impact as the group’s gearing was expected to exceed two-fold net-debt/earnigns before interest, tax, depreciation and amortisation (EBITDA), aggravating concerns of dividend sustainability.
Overall, the research house trimmed the financial year 20172018 forecast (FY17F-18F) earnings of the mobile operators by three to five per cent after incorporating the spectrum payouts.
Meanwhile, RHB Research expected Telekom Malaysia Bhd’s ( TM) internet/ data growth to remain the key growth driver, underpinned by the expansion of its fiber footprint from the High Speed Broadband (HSBB2) (until 2017) and Sub Urban Broad Band (SUBB) (until 2019) projects.
“The increasing demand for speed/bandwidth and larger data consumption would also help sustain the upselling of UniFi from Streamyx and mitigate the cannibalisation from down-trading activities arising from the government’s call to offer greater speeds for the same price from 2017,” it said.
RHB Research noted that similarly, the trend of increasing data usage would help sustain the growth momentum of TIME dotCom Bhd’s ( TDC) regional bandwidth sales and data centre revenues.
The research house expected a stronger 2017 from the full year contributions of the Asia-Pacific Gateway (APG) (since October 2016) and FASTER (since July 2016) submarine cables, as well as the AAE-1 cable (operational expectations in 2017).
“As such, we also opine that fixed- line operators’ resilient earnings could provide investors refuge from the stiff competition afflicting the mobile operators,” the research house said.
On capital expenditure (capex), RHB Research projected capex intensity (capex/revenue) to remain elevated for FY16 as telcos continue to invest heavily to meet data demand and to expand 4G coverage.
Based on the research house’s estimates, average mobile data usage (gigabyte (GB) per sub per month) grew 24 per cent quarter on quarter (q-o-q) and doubled year on year (y-o-y) in 3Q16.
RHB Research highlighted that the industry continues to undergo a structural shift as legacy revenues are being clipped at a faster rate than the growth in data revenue, which has led to a weaker service revenue trend.
The research house forecasted 3Q16 data revenue to grow 3.4 per cent q-o-q and 15.5 per cent y-o-y, while service revenue (predominantly voice and SMS revenue) to contract 0.1 per cent q-o-q and 15.6 per cent y-o-y.
“The monetisation of data remains a formidable challenge with the industry’s data yields falling to an estimated US$2.30 per GB per month (down 16.6 per cent/42.6 per cent q-o-q/y-o-y) in 3Q16,” it said.