Telcos to see repetitive year in earnings
KUCHING: The telecommunications sector incumbents have been projected to report a similar performance in 2018 as in the prior year, while competition has been expected to stay with the key battle and likely to focus on the prepaid segment, product upselling and data monetisation.
According to the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), sector incumbents are set to report a similar performance in 2018 as in prior year in view of the comparable earings’ guidance provided by all players as well as the challenges facing the industry.
Service revenue growth of mobile players are expected to stay flat or be in the negative for financial year 2018 ( FY18) with margins likely to stay similar to the prior year, it said.
The flat or negative growth would largely be due to the continued SIM consolidation, new access pricing structure and challenges in its operating companies ( OpCos) ( for Axiata Group Bhd).
The research arm further noted that on the fixed operator front, Telekom Malaysia Bhd (TM) is targeting annual revenue growth of 3.5 to four per cent, underpinned by its complete quad play services, with normalised earnings before interest and tax ( EBIT) maintained at FY17 level at circa RM1.2 billion.
“Moving forward, all the industry incumbents are set to continue expediting their digital transformation as well as enhancing their operational efficiencies,” it said.
While the research arm concurred with the industry players’ initiatives, Kenanga Research believed the sector will continue to remain stagnant while waiting for the next growth opportunity to arise.
“Besides, with increasing operational costs, spectrum scarcity and increased data demand, operators will need to work around the connectivity challenges with industry peers to sustain financial performance.”
Thus, the research arm did not discount operators finding ways to strive for more efficiency gains via network collaboration/ optimisation and/ or lower customer acquisition costs.
Moving forward, Kenanga Research expected mobile service revenue to see a mild dip of 0.8 per cent year on year (yoy) in current year 2018 ( CY18) due to the prolonged industrywide SIM consolidation, new access pricing structure and competitive pressure in the IDD segment.
However, the research arm noted that the earnings before interest, tax, depreciation and amortisation ( EBITDA) margin is likely to remain relatively stable, similar to the prior year as a result of the effective cost optimisation efforts.
“Competition, on the other hand, is expected to stay with key battle likely to focus on the prepaid segment, product upselling, and data monetisation,” it said.
“Besides, capital expenditure ( capex) is set to remain elevated due to spectrum- related costs for 700MHz ( where the result of the tender process is likely to be announced in mid2018), and continued network expansion.”