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CIMB Research Neutral on telco sector, Axiata top pick

KUALA LUMPUR: CIMB Equities Research is maintaining its Neutral outlook on the Malaysian telco sector, which is trading in line with the Asean average of 17. 1 times.

The research house said on Friday this was based on the FY18 forecast of enterprise value/operating free cashflow (EV/OpFCF) of 17.1 times. 

“Due to weak data monetisation, we believe that industry revenue is unlikely to see a big rebound in the near-term, though it could stabilise from here. 

“FY17-18F yields are decent but not outstanding at 3.1%-3.6%. We have Hold ratings on Maxis, TM and Digi, and an Add for Axiata. Key upside/downside risk: competition eases significantly/higher-than-expected spectrum prices,” it said.

CIMB Research said the mobile industry service revenue largely stabilised quarter-on-quarter in 2Q17, down a mild 0.2% (0.9% year-on-year). 

Prepaid revenue fell 2.3% quarter-on-quarter (-7.9% year-on-year) due to intense competition and industry-wide SIM card consolidation. 

However, this was buffered by 1.3% quarter-on-quarter (+6.2% year-on-year) growth in postpaid revenue on pre-to-postpaid migration and take-up of higher-priced plans. 

In the fixed line business, Telekom Malaysia’s revenue rose a tepid 0.5% quarter-on-quarter and slipped 2.1% year-on-year, due to softer government/enterprise ICT spending. 

However, Celcom performed slightly better than peers in 2Q17 with mobile service revenue up 1.4% quarter-on-quarter (+0.7% year-on-year). 

Maxis’s dipped 0.6% quarter-on-quarter (-2.5% year-on-year), while Digi’s fared the worst, with revenue down 1.3% quarter-on-quarter, albeit decelerating from 1Q17. 

Celcom gained revenue market share (RMS) for the first time since 2Q14, up 0.5 percentage point to 30.3% and consolidated its second position. 

Maxis’s RMS dipped 0.2 percentage point quarter-on-quarter to 40.2%, while Digi’s fell for a fourth quarter in a row, down 0.3 percentage point quarter-on-quarter to 29.5%. 

Celcom’s 2Q17 EBITDA jumped 7.3% quarter-on-quarter (-1.9% year-on-year), as EBITDA margin rose 2.4 percentage point quarter-on-quarter (+0.7 percentage point year-on-year) to 38.9%. 

Maxis’s EBITDA eased 1.7% quarter-on-quarter (+9.3% year-on-year) due to lower margin which eased 1.2 percentage point quarter-on-quarter (+2.8 percentage point year-on-year) to 50.8%. 

Digi’s EBITDA rose 0.9% quarter-on-quarter (-2.5% year-on-year) with margin rising 1.0% pt quarter-on-quarter (+1.8% pts year-on-year) to 46.2%. 

Maxis and Digi’s 2Q17 EBITDA market share fell 1.4% pts and 0.1% pt quarter-on-quarter to 45.0% and 29.3% respectively, while Celcom’s recovered 1.5% pts quarter-on-quarter to 25.7% after a weak 1Q17. 

The prepaid market saw high activity levels in June-August, with several new offers from the Big Three and MVNOs. But the new offers did not undercut on pricing, and were targeted at specific segments or aimed at upselling.

For postpaid, there were not many new offers. Notably, Celcom retired its First Blue (RM45) plan to focus on the mid/higher-tier segment, with two new variants (RM128 and RM188). 

For international direct dialing, the Big Three’s headline tariffs were unchanged though U Mobile cut its tariff to Bangladesh.

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