Telco players emerge strong in first quarter, sees higher contribution

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KUCHING: The telco players posted fairly strong first quarter 2012 results with Telekom Malaysia Bhd (TM) leading the pack, underpinned by higher contribution from all its business segments.

“TM continues to be our top pick in the telco sector due to its strong dividend yield, solid presence in the fibre-to-the-home (FTTH) market and the lesser competition seen in its wholesale and fixed-line segments,” Kenanga Investment Bank Bhd (Kenanga Research) said in its research report.

For the mobile operator segment, DiGi.com Bhd (DiGi) continued to be the research house’s favourite pick as it had continued its capital management initiative to propose another capital distribution of RM495 million while Axiata Bhd’s (Axiata) first quarter result was mainly driven by higher contribution from Celcom Axiata Bhd.

Maxis Bhd (Maxis) first quarter result was relatively flat on a year-on-year basis.

However, Kenanga Research believed that the company had started to record negative net-adds in its subscribers and continued to lose market share to its peers.

“While competition is intensifying all the time, we expected the industry’s growth momentum to continue judging from the fairly strong first quarter results performance,” the report added.

It also expected industry players to potentially look into the sale and leasebacks of their respective telecom towers in line with the global industry trend.

It believed that this move, if materialised, might further unlock shareholders value in its view.

The research house also mulled over the possibility of digital terrestrial television broadcasting (DTTB) as a possible new source of income for telco players.

“The submission of a request for proposal for the DTTB system is targeted to be due on July 25, according to the Malaysian Communications and Multimedia Commission (MCMC).

“The winner of the tender will build and operate the infrastructure and network facilities for DTT services where all broadcasters can ride on the infrastructure to transit their TV programmes,” Kenanga Research added.

The research house noted that the telco sector had a very strong rally since the beginning of the year with an average total return of 13.9 per cent for the year-to-date performance as of June 20.

It believed that Malaysia would likely continue to be a safe haven and defensive shelter for investors due to its stable economy.

“We believe that the telco sector will continue to be under the investors’ limelight in the second half, given its decent dividend yield and strong operating cash flow generation capability,” said the research house.