Cost pressures: A file photo of a technician examining a control panel for a communications tower. Price competition is expected to be a big factor for local telcos. — Bernama
PETALING JAYA: The Malaysian telco sector may have recovered from the July lows, but the key risks ahead for the sector and stocks include intensifying competition, weaker-than expected earnings and regulatory setbacks.
Clarity on the access cost impact will be a key share price re-rating catalyst for the sector in RHB Research’s view.
Though the sector recovered, it was still down by about 2% year-to-date (y-t-d) on the back of protracted regulatory uncertainties such as mandatory standard on access pricing and dual 5G networks, it said.
It added that there are also concerns over competition with extended pressure on data yields.
RHB Research said Axiata Group Bhd
remained the key sector laggard, down 18% Y-t-d, being one of the worst performers among the Asean-4 telcos.
Its top picks are TIME Dotcom Bhd (TDC) and OCK Group Bhd. The research house is maintaining its “neutral” call on the stocks with a preference for fixed-line plays.
The research house added that the signing of new commercial wholesale agreements with access seekers may happen soon, which will pave the way for new retail fibre broadband prices.
However, concerns over renewed retail-price competition from lower access cost have been a key overhang.
Based on the July 28 reference access offer (RAO) document, wholesale access prices (Layer 3 Service Gateway) for the incumbent fixed-line operator are 9% to 60% lower across tiers versus the previous RAO (2018) with a mean reduction of 37%.
The difference in cost per megabytes per second (Mbps) between the lowest and highest speed tier is 68% (in 2018 it was 55%).
The rate tops out at RM2.55 per Mbps per month for nine terabytes per second (Tbps) and under the current RAO versus RM6.31 for three Tbps and above in the previous RAO.
RHB Research added that most telcos delivered results in line with expectations for the quarter ended June, with Axiata being the sole loser.
Axiata’s results were due to elevated depreciation and financing costs and disappointments at edotco Group and Linknet.
Both CelcomDigi Bhd and Maxis Bhd delivered stronger earnings quarter-on-quarter (q-o-q), but the former was still hit by accelerated depreciation from the on-going network integration.
TDC’s core earnings contracted by 11% q-o-q, post selling its data centre business in April, with the AIMS Group re-classified as an associate (previously a wholly-owned subsidiary).
Overall, core sector mobile earnings rose by about 6% q-o-q in the second quarter of 2023, while fixed-line core earnings advanced 52% quarter-on-quarter.
On key forecast changes, Axiata’s financial year 2023 to 2025 earnings were slashed by 22% to 39% after imputing weaker contributions for Linknet and edotCo.
The research house’s forecasts for the other mobile operators were largely unchanged.
