Thursday 28 Mar 2024
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KUALA LUMPUR (Nov 20): Malaysian mobile telecommunication operators will continue to face stiff competition which could lead to their average operating earnings before interest, taxes, depreciation and amortisation (EBITDA) margins to shrink by 70 basis points (bp) to 100 bp, according to Fitch Ratings.
 
In its special report themed "2016 Outlook: Malaysia Telecommunications Services" that was released today, the global ratings services agency said that the competition in the Malaysian mobile sector will persist amid weak consumer spending and the entry of incumbent fixed operator such as Telekom Malaysia Bhd (TM), into the 4G market.
 
But the competition in the fixed-line and fibre broadband segments will remain moderate, it noted. 
 
In view with this, Fitch forecasts that the revenue of Malaysian telco to grow by a low-single-digit percentage, driven by expansion in fibre rollout.
 
"The average operating EBITDA margins of telcos are likely to shrink by 70bp to 100bp, due to revenue pressure and cost increases," it said, adding the expansion in the long-term evolution (LTE) network and fibre broadband will drive capital expenditure (capex) investments.
 
Nevertheless, Fitch expects this to keep TM's funds flow from operations (FFO)-adjusted net leverage around 1.9 times to 2 times - close to Fitch's negative guideline.
 
"We anticipate limited upside on the sector outlook as the ongoing weakness in the ringgit and intense competition are likely to weigh on operating cash flows," it said. 
 
It expects that the capex and dividends will remain high, which ensure that credit metrics are much more likely to deteriorate than to improve.
 
"However, a significant easing in competition which improves margin and cash flow from operations could lead to the sector outlook turning stable, from negative," it said. 
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