PETALING JAYA: The telecommunications industry’s key focus
for the year is cost optimization, in expectations of a relatively flat service
revenue due to growing smartphone penetration and successful data monetization,
said UOB KayHian.
The research house added that Digi.com Bhd aimed to achieve
a 1-3 percentage points in cost reduction over 2017 and 2018 while Axiata Group
Bhd aimed to achieve RM2.3bil cost savings over 2017 until 2019.
“We believe this will help lift 2017 sector core net profit
by 2.5% year-on-year (y-o-y) to RM6.07bil with a price-earnings ratio of 24
times,” said UOB KayHian in a sector report.
In the fourth quarter of 2016, Maxis Bhd experienced a 26%
quarter-on-quarter (q-o-q) increase in data usage to 3.3GB per month, as
smartphone penetration reached 75%.
Service revenue last year contracted 4% y-o-y as a result of
a weak second quarter where service revenue contracted 2% q-o-q due to
irrational competition.
“Nevertheless, service revenue subsequently recovered in the
second half of 2016, driven by higher postpaid data allocation, and higher
blended average revenue per user (Arpu), thanks to sequential price
stabilization within the international direct dialing (IDD) prepaid segment.
“Overall, Maxis continues to lead in terms of service
revenue market share at 41%, while Digi expanded its postpaid footprint,
leading to a market share of 30%,” said UOB KayHian.
The research house maintains market weight on the sector,
with Axiata and OCK Group Bhd as its top picks.
“We believe that Axiata’s sell-off has largely priced-in
near term earnings headwinds and dividend cut in 2017.
“We would accumulate Axiata on share price weakness for
depressed valuations, stabilization at Celcom and turnaround at XL Axiata
within the next two years and with Axiata being a large-cap laggard with
liquidity,” said UOB KayHian, adding that OCK would be a key beneficiary of
rising data volume in frontier emerging markets.
The company can leverage on Telenor Myanmar’s rapid network
expansion while the recent acquisition of SEATH (Southeast Asia
Telecommunications Holdings) in Vietnam provides for a meaningful footprint in
the country’s growing market.
Key re-rating catalysts include additional tower lease contracts
secured in Myanmar and/or Vietnam, and higher tenancy ratio.
Beyond 2017, OCK will secure an additional 2,000 tower lease
contract in Myanmar.
The telco industry’s key events slated for the year include
potential spectrum re-allocation of 700, 2,300 and 2,600 MHz bandwidth in 2017
or 2018, potentially synergistic merger between Telekom Malaysia and Celcom or
spin off of Celcom to Telekom Malaysia, as well as market consolidation with
U-Mobile’s prized spectrum potentially up for sale to the highest bidder.