KUALA LUMPUR (Dec 23): The telecommunication sector, led by three major players, Digi.com Bhd, Celcom and Maxis Bhd, may continue to face headwinds in monetizing data on the back of declining legacy revenue in heightened competition going into 2015.

In a note today, RHB Research said thus far, the growth in data revenue – stemming from accelerating growth in mobile revenue – has only partially offset the loss in traditional voice revenue, which still makes up almost two-thirds of industry service revenue.

Also, RHB Research noted that competition remained intense, especially with unlisted U-Mobile upping its ante and Telekom Malaysia (TM) rolling out a converged LTE mobile offering following its acquisition of P1.

RHB Research maintains a “neutral” call for the sector as it believes that at this juncture, most of the upside on the sector has been priced-in and valuations already look fair.

“The current unfavourable market outlook and the uneven global macroeconomic recovery may benefit the sector, given its defensive nature and decent dividend yields. Axiata is our preferred pick,” it said. The research outfit pegs its target price for Axiata at RM7.20.

RHB Research remains cautious on growth prospects for the telco sector, as additional competition and the impending implementation of the goods and services tax (GST) could well translate into more pricing pressure for the telcos and the industry in 2015.

While the introduction of GST on April 1 next year is expected to slow down overall consumer spending; RHB Research believed it would be positive for the sector, especially for those with larger exposure to the prepaid segment, such as Digi.com Bhd and Maxis Bhd.

“The cost-savings from the 6% service tax pass-through should bolster cellcos’ earnings by 2%-6% for FY15, if all factors are unchanged.

"That said, the actual cost savings could come in lower over the short term as there could be a drop in consumption due to the anticipated slowdown in overall consumer spending post GST and given the price-sensitive nature of most prepaid subscribers,” it said.

On spectrum re-farming mooted by the Malaysian Communications and Multimedia Commission (MCMC), RHB Research believed it would likely take place in second half of 2015 with Digi.com seen as a likely beneficiary as it currently has limited 900Mhz spectrum and needs more to re-farm the 1,800Mhz spectrum for LTE.

“That said, as the structure of the refarming exercise has yet to be decided upon, the spectrum tenders could be opened up to other new and emerging players, and this could potentially threaten the positions of the current players in the sector,” it said.

Maxis Bhd share price was up four sen or 0.59% to RM6.84, with 2.21 million units traded as at 3.45 pm. Maxis had climbed to a high of RM6.86 earlier but gave up the gain to  settle at RM6.84.

Axiata remained unchanged at RM7.00, with 4.88 million shares changing hands as at 3.45pm. It had earlier risen to RM7.10.

However, Digi.com Bhd dropped 3 sen, or 0.48%, to RM6.23, with some 4.1 million shares traded.