KUALA LUMPUR: The competition among Malaysia’s telecommunication companies (telcos) is expected to intensify, weighed down by the impact of the implementation of the goods and services tax (GST).

In a note to investors last Friday, CIMB Research analyst Foong Choong Chen said the research house maintains its “underweight” rating on the telco sector as financial results for the second quarter of 2015 (2Q2015) and 3Q2015 are likely to disappoint the market.

“We cut our financial year 2015 to 2017 Ebitda (earnings before interest, tax, depreciation and amortisation) and core EPS (earnings per share) forecasts for DiGi.Com Bhd, Axiata Group Bhd and Maxis Bhd to factor in more intense price competition in the prepaid mobile market, and less benefits from passing through the 6% GST to prepaid users as the regulators have decided to charge GST upon usage (that is subscribers may pare down usage) rather than on top of the usual top-up card prices,” Foong noted.

Putrajaya had on May 13, almost 45 days after the implementation of GST, announced that GST will not be imposed on prepaid reloads but will be based on usage, which would result in lower usage from subscribers.

When contacted, an analyst from HLIB Research told The Edge Financial Daily that despite the downside, telcos might be able to see some relief in 3Q2015, during the Hari Raya celebration and the school holidays. Moreover, the 3Q and 4Q are traditionally the better quarters for telcos.

AllianceDBS Research analyst Toh Woo Kim concurred, and stressed that there will still be growth in the industry, but at a slower pace.

Therefore, he particularly favours Telekom Malaysia Bhd (TM), which is secluded from the mobile operators’ competition.

“The competition now is intense, despite the fact that revenue from mobile Internet is increasing, but revenue from voice and SMS (short messaging services) are declining as well,” he told The Edge Financial Daily.

“Previously, the Big Three (Maxis, DiGi and Celcom) would always try to maintain their prices, but now, even they are competing with lower priced products,” Toh added.

Foong also noted that industry mobile Internet revenue rose 3.4% quarter-on-quarter (q-o-q), but was more than offset by 5.4% and 14.2% q-o-q decline in voice and SMS respectively.

An analyst who declined to be named, pointed out that Maxis (fundamental: 1.15; valuation: 1.1) and Celcom Axiata Bhd, a unit under Axiata (fundamental: 0.85; valuation: 1.1), is fighting aggressively for more market share in the migrant workers and rural segment, by offering products with lower international direct dialling (IDD) rates.

With the intensified competition in the prepaid market, DiGi (fundamental: 1.55; valuation: 1.7) would have been negatively impacted as its prepaid market leadership came under heavy attack from competitors, Foong’s report noted. DiGi declined by 11% to RM5.51 yesterday, from RM6.22 per share on April 1.

Meanwhile, shares of Maxis and TM (fundamental: 0.8; valuation: 1.1) were up by four sen (0.62%) and nine sen (1.32%) respectively to close at RM6.53 and RM6.92 a share. Axiata’s share price fell one sen or 0.15% to RM6.49 per share.

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This article first appeared in The Edge Financial Daily, on June 23, 2015.