The telco industry reported improved results for 3Q20 but analysts pointed out that there is still unrelenting competition the mobile segment while competition is increasing for the fibre segment.
KUCHING: Telecommunication companies (telco) reported improved results for the third quarter of 2020 (3Q20) but analysts pointed out that there is still unrelenting competition the mobile segment while competition is increasing for the fibre segment.
In a report, the research team at AmInvestment Bank Bhd (AmInvestment) noted that the telco sector’s 3Q20 results have shown substantive improvement with Axiata Group and Telekom Malaysia (TM) beating market expectations while Maxis and Digi were in line.
The top outperformer was Axiata which registered a sharp rebound in revenue growth and cost reduction following Covid-19 restrictions on subscriber accretions in 2Q20 while TM’s results, which came in above street’s, were within expectations.
In the celco segment, AmInvestment noted that the 3Q20 celco core net profit recovered with an increase of 20 per cent q-o-q to RM925 million after contracting by 11 per cent q-o-q in 2Q20 due to the impact of the MCO which dented service revenue, subscribers and average revenue per user (ARPU) parameters.
Driven largely by higher service revenues, celcos’ 3Q20 service revenues rose six per cent q-o-q to RM5.4 billion after decreasing by eight per cent in 2Q20. This drove EBITDA by eight per cent q-o-q and EBITDA margin increasing by two ppt to 16.2 per cent. The higher service revenue stemmed from ARPU rising by RM2 per month to RM42 per month and postpaid subscribers increasing by 76,000 q-o-q to 9.8 million.
Despite the improved results, AmInvestment pointed out that there is still unrelenting competition in mobile and rising competition for the fibre segment.
“In our view, U Mobile’s RM30 prepaid package, which offers unlimited data and 6GB hotspot with speed cap of 6Mbps together with RM5 per month top-up for unlimited calls, remains the frontline in the mobile wars.
“However, Digi’s current entry-level plans for prepaid packages at RM15 per month and postpaid at RM38 per month are gaining traction even with limited data quotas,” it said.
In the fibre broadband market, it said TM’s unifi has been aggressively competing for market share with recent promotions of free 42’ Sharp TV sets and redemption of the RM500 penalty fee for switching from Maxis Home Fibre. In Peninsular Malaysia, Celcom and Digi have begun to target selectively market segments in the Klang Valley for their fibre-to-home offerings.
Meanwhile, it pointed out that consolidation is still on the cards for the telco sector.
With declining data yields, new 5G spectrum fees and capex pressures, telco players would likely seek consolidation amongst themselves to reduce costs, secure economies of scale and reduce rivalry.
“While the MCMC has shown a preference for maintaining competitive pressures to provide reduce broadband prices for consumers, we maintain our view that industry players will likely engage in merger and acquisition activities, which was reaffirmed during Axiata’s Analyst & Investor Day conference (recently),” it said.
All in, AmInvestment maintained its ‘overweight’ rating on the sector.
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