PETALING JAYA: Cost optimisation is set to play a crucial role in maintaining profitability for Malaysia’s telecommunications sector.
This comes amid intensifying competition, especially in the home fibre broadband market, and stagnating revenue, according to Maybank Investment Bank (Maybank IB) Research.
The research house noted that the country’s telecommunications industry is increasingly involved in a long-drawn race to the bottom, as competition hampers monetisation and regulatory demands intensify.
“As revenue stagnates, we believe telcos can only rely on optimising costs (including engaging in mergers) to preserve earnings,” it wrote in its report yesterday.
Maybank IB Research reiterated its “neutral” stance on the sector, citing the challenging outlook.
“The home fibre broadband segment is increasingly becoming more competitive as mobile operators offer greater discounts.
“Fixed-line incumbents could face slowing retail revenue, but are partly offset by higher wholesale access fees (from mobile operators),” it said.
“The overall outlook for the sector remains challenging (though somewhat priced-in), and we prefer telcos with room to optimise costs,” it added.
Maybank IB stated that Malaysian telcos with headroom to address costs included Telekom Malaysia Bhd
(TM), Axiata Group Bhd and CelcomDigi Bhd.
The brokerage’s top pick is CelcomDigi, with a target price of RM4.50.
On discounts within the industry, Maybank IB Research noted that apart from handset subsidies, mobile operators are also increasingly using fixed broadband as a subscriber retention tool.
“While bundling of services has long been prevalent, mobile operators are offering greater discounts off their home fibre plans. Fixed-line incumbents (TM and TIME Dotcom Bhd) have had to react through discounting too.
“The competitive situation remains fluid,” it said.
Maybank IB estimated that for every RM10 per month average revenue per user erosion, its 2024 net profit forecast for TM and Time dotCom would reduce by 16% and 9%, respectively.
“Fixed-line operators somewhat benefit via increased wholesale fees through access arrangements with mobile operators, but rates are capped by mandatory standard on access pricing to some extent,” it said.
“Incrementally, fixed-line operators have limited levers to push, in our view.
“TM could attempt to bundle or push its mobile product more aggressively since network quality is no longer perceived to be an issue (TM’s mobile product now rides on Maxis’ network).
“Bundling content could be another avenue,” it added.
