Top Story : Telecom - Decent growth coupled with attractive yields
Overweight (* from N)
Sector Update
- Despite continued subscriber growth, voice minutes are
increasingly becoming commoditised and we expect tariffs would
continue to be under pressure. Moving forward, we expect topline
growth for the sector would largely be driven by non-voice revenue
with the two key drivers of non-voice revenue being wireless broadband
and data value-added services.
- Our optimism on data revenue is based on factors such as
Malaysia's young demographic profile that are internet savvy,
acceleration in deployment of advanced technologies as well as more
advanced mobile internet networks as well as influx of feature-rich as
well as data-optimised handsets and smartphones.
- We are generally comfortable with the gearing positions of
the telco operators. For the mobile operators, we expect annual
operating cash flows to trend upwards on the back of mid-high single
digit/low double digit revenue growth as well as stable EBITDA
margins.
- As for TM, EBITDA margins are expected to remain under
pressure in the near term mainly due to rollout cost for its HSBB
network but our numbers suggest that annual operating cash flows
should be sufficient to meet its capex requirements.
- The key risk is still, in our view, competition. However,
while we expect tariffs to continue to remain under pressure due to
the intense competition, we do not expect irrational pricing to
set-in.
- We have upgraded our recommendation on Digi to Outperform
from Market Perform and consequently, upgraded our sector call to
Overweight from Neutral.
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