PublicInvest: Usage-based GST for prepaid services positive for key players

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KUALA LUMPUR (May 14): Public Investment Bank Bhd (PublicInvest) said the new goods and services tax (GST) structure for prepaid services will be positive for key mobile players, following the clarification made by the Communications and Multimedia Ministry yesterday.

Minister of Communications and Multimedia Datuk Seri Ahmad Shabery Cheek said that GST charges for prepaid services will be based on usage, adding that Putrajaya expects telcos to adhere to the new system within six months.

"To balance the effects of GST implementation, the government has told telcos to reduce their service tariffs. They have also been asked to provide affordable packages for groups like students," he told reporters yesterday.

Following the announcement, shares of select mobile players were on the rise.

At 11.15am, DiGi.Com Bhd (fundamental: 1.55; valuation: 1.7) rose 3 sen or 0.5% to RM5.99, with some 1.3 million shares done.

Meanwhile, Axiata Group Bhd (fundamental: 0.85; valuation: 1.1) gained 1 sen or 0.14% to RM6.74, with 2.4 million shares exchanged.

In a note today, PublicInvest said the new implementation of GST will be positive for key mobile players, as companies will be able to pass through effectively the GST on prepaid services.

“We believe DiGi.Com Bhd will be the biggest beneficiary as it derives the highest percentage of revenue (73% in FY14) among key mobile players from the prepaid segment,” it said.

The research house also noted that DiGi’s share price performance has been relatively weak in the past month, partly due to uncertainty over the GST implementation.

“While telcos will incur additional costs to reconfigure their systems and produce new prepaid top-up cards, we believe the benefits from passing through GST on prepaid services will outweigh the additional costs of reconfiguration to collect GST based on usage,” said PublicInvest.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)