Telco’s 1Q20 disappointing, celcos face pricing challenges
KUCHING: The telecommunication (telco) sector’s first quarter of 2020 (1Q20) results performance was disappointing, analysts observe, as Digi.Com Bhd (Digi), Maxis Bhd (Maxis) and Axiata Group Bhd (Axiata) came in below expectations.
According to AmInvestment Bank Bhd’s research house (AmInvestment Bank), this was due to higher operating costs and International Financial Reporting Standard (IFRS) 16 lease accounting-driven depreciation charges.
“Telekom Malaysia Bhd’s (TM) normalised net profit, which fell 19 per cent year on year (yo-y) from declining Streamyx subscribers and average revenue per users ( ARPU), was in line with expectations,” the research firm said.
“While registering an outstanding net profit growth of 55 per cent y- o-y from strong overall revenue expansion amid non-recurring gains on contractual penalties and forex gains, Time dotCom Bhd’s 1Q of financial year 2020 (1QFY20) results were still largely within consensus’ sanguine expectations.”
AmInvestment Bank recapped that all telcos have withdrawn or currently reviewing their earlier FY20F guidance for revenue, earnings before interest, tax, depreciation and amortisation (EBITDA) and capex due to the uncertain Covid-19 impact on net subscription rates for celcos with the closure of retail outlets commencing March 18, 2020 amid the Streamyx repricing process
Telekom Malaysia Bhd’s (TM) normalised net profit, which fell 19 per cent year on year (y-o-y) from declining Streamyx subscribers and average revenue per users (ARPU), was in line with expectations.
AmInvestment Bank
for TM.
The research firm highlighted that net subscription rates have yet to account for the full impact of the ongoing Covid-19 movement restrictions.
“Earlier this year, Celcom Axiata Bhd (Celcom) introduced a postpaid plan with unlimited data with its MEGA product launch at RM98 per month with a hotspot quota of 5GB per month.
“U Mobile Sdn Bhd (U Mobile) also has a new GX38 prepaid plan which offers unlimited data at a promotional price of RM35 per month with a speed cap of 6Mbps, compared with 3Mbps for its existing GX30 plan priced at RM30 per month.
“For comparison, Digi currently offers its Infinite online plan with unlimited data and calls at RM100 per month while Unifi Mobile is priced at RM99 per month.
“Maxis currently does not have an unlimited data plan, with the highest MaxisOne quota of 60GB priced at RM188 per month.
“While operators are navigating cautiously under the current movement restrictions, we do not preclude future erosion in ARPUs from new pricing challenges.”
All in, AmInvestment Bank maintained its ‘neutral’ outlook on the sector given the unmitigated mobile competition amid escalating capex requirements against the backdrop of the National Fiberisation and Connectivity Plan (NFCP) agenda to improve national connectivity and affordability.
“Sector can be de-rated on resumption of revenue declines against the backdrop of escalated mobile price war and
potential cuts in fixed broadband prices this year under NFCP prerogatives.
“We are also cautious on possibilities of higher-thanexpected increase in operating and capital cost requirements as operators need to further upgrade their network infrastructure for 5G rollouts.
“Sector can be upgraded on renewed consolidation prospects amongst the current six main cellular operators which could lead to a moderation in mobile price competition, official suspension of the Malaysian Communications and Multimedia Commission’s (MCMC) plans for further broadband price cuts and significant contraction in operating costs from increased infrastructure sharing arrangements amongst operators.”