KUCHING: The Big Three telecommunication (telco) groups will see better growth prospects as evidence of falling capital expenditure (capex), low broadband penetration and generous dividend yields are ongoing within the sector.
With only 2.7 million mobile broadband (MBB) subscribers or six per cent of the total population as at March 11, analyst at the Kay Hian (Malaysia) Holdings Sdn Bhd (UOB Kay Hian) stated that there was still a lot of upside potential to reach a 75 per cent penetration rate for Malaysian celcos over the long term.
In the medium term, analysts projected the MBB division to contribute to eight per cent of 12 per cent of the telcos’s 2011 to 2013 forecast of total revenue as compared to five per cent in 2010.
“We expect MBB revenue for the Big Three to grow 63 per cent this year and 37 per cent next year versus an 80 per cent growth in 2010 and 187 per cent in 2009. This will be driven by wider coverage, wider proliferation of devices and wider choices of broadband plans from celcos,” said the research house.
Considering that more than 50 per cent of the Big Three’s mobile subscriber access the mobile internet at least once a month and taken into account of the MBB average revenue per user of RM60 to RM70 per month, the UOB Kay Hian research team was confident that mobile internet had the potential to rise to RM50 over the longer term.
Analysts believed that this segment could become an extremely significant revenue contributor in the future.
On the capex front, DiGi’s capex was forecasted to fall 10 per cent to RM658 million in 2011 from 2010 as it upgraded its entire network over 2011 to 2013.
“Not only would the new equipment be long–term evolution compatible, but they are expected to be operationally more efficient. Also, by awarding the entire network to ZTE, DiGi was able to negotiate for a much better pricing,” noted the research firm.
Maxis on the other hand was seeing lower capex in 2011 after gaining access to Telekom Malaysia Bhd’s (TM) high speed broadband (HSBB) fibre network. To recap, Maxis had been rolling out its own fibre network prior to signing with TM. This capex was reduced now that Maxis is leasing TM’s fibre.
“Consequently, we project capex-to-revenue ratio of the Big Three to fall an average of about 0.5 percentage points a year from 13.7 per cent in 2010 to 12.3 per cent in 2013,” highlighted analysts.
Moving ahead, against a backdrop of earnings growth and falling capex-to-revenue ratio, the research team forecasted the free cash flow for the Big Three to rise eight per cent to 11 per cent in 2011 to 2012. This was led by a healthy 13 per cent to14 per cent growth by Maxis resulting from its lower capex.
Excluding Maxis, combined free cash flow for Celcom and DiGi could rise up to four per cent to six per cent.
Due to Digi’s network upgrade, the group’s current equipment would be written down in the form of about RM1 billion accelerated depreciation over the period of 2011 to 2013.
“Since it is non-cash in nature, the company is expected to maintain the same 163 sen net dividend per share (DPS) for 2011 to 2012, representing a larger than 120 per cent net payout ratio,” said UOB research firm.
Maxis nevertheless was expected to incur start-up losses for its fibre business in 2011 to 2013. However, it planned to maintain a 40 sen net DPS or 7seven per cent net dividend yield. This represented a net payout ratio of 140 per cent, and was supported by healthy free cash flow.
UOB Kay Hian pegged DiGi at a target price of RM31.20 per share, Maxis at RM5.35 and Axiata Group at RM6.