Friday 29 Mar 2024
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KUALA LUMPUR (June 8): UOB KayHian Research projects an 11% year-on-year (y-o-y) net profit recovery for 2021 to RM5.3 billion for the telecommunications sector. The foreign research house added in a report today that it is maintaining its "market weight" rating for the industry following the implementation of the movement control order (MCO) as it expects low customer churn. 

It listed the key drivers for recovery in the sector are: 

  1. a 9% y-o-y topline growth from fixed-line players 
  2. a 2% y-o-y service revenue growth from the Big 3 telcos 
  3. firm EBITDA margin 
  4. increased enterprise solution orderbook, particularly for Telekom Malaysia Bhd (TM). This is expected to be partly offset by higher capex as telcos are expected to accelerate network expansion plans and enhance network quality. 

UOB KayHian also noted that while the reimplementation of the nationwide lockdown may restrict prepaid distribution channels and limit telcos’ ability to acquire new customers, it believed that the risk of customer churn is lower this time round given the wide adoption of digital distribution platforms. 

“As telecommunications is deemed as an essential service, we believe the risk of customer downtrading is minimal as the underlying demand for data consumption remains robust. Naturally, shrinking customer wallet will have a longer term impact in terms of telcos’ ability to drive ARPU uplifts,” it added. 

UOB KayHian stated its preference for fixed-line players over wireless players “as favourable government initiatives for accelerating fibre works bode well for TM and TIME”. 

“We expect fixed-line operators to fare better than mobile operators in 2021 given positive subscriber growth trajectory and stable ARPU outlook. Our top picks are TM (target price: RM7) for its good growth prospects, and Axiata (target price: RM4.70) for its depressed valuation and it being a proxy for regional reopening play. The sector is trading at 7x FY21F EV/EBITDA (1SD below its 5-year mean) and 25x FY21F PE,” it added. 

Edited ByJoyce Goh
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