Telco players on track to meet full-year targets

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Chart shows KPI and earnings guidance for 1QFY13 and FY13 (SOURCE: Kenanga Research, companies)

KUCHING: With sector players’ results coming mostly within expectations and on track to meet respective full-year earnings guidance, telecommunication corporations are set to see a strong year ahead with 4G roadmaps underway.

Researchers at Kenanga Investment Bank Bhd (Kenanga Research) noted in its results snapshot for the first quarter of the financial year 2013 (1QFY13) that local telco players posted a mixed set of 1QCY13 results.

With telco incumbents’ results mostly within the firm’s as well as the market expectations, Kenanga Research noted that DiGi.Com Bhd (DiGi) was the only telco that recorded disappointing results.

“This was due to higher handset related expenses as a result of stronger handset sales, higher accelerated depreciation costs and seasonality factors,” the research firm explained.

“Meanwhile, both Maxis Bhd (Maxis) and Celcom Axiata Bhd’s (Celcom) results came in within ours as well as the consensus estimates.”

Telekom Malaysia Bhd (TM), on the other hand, was the only incumbent that posted better-than-expected results due to its lower operating costs coupled with a better effective tax rate, added the firm.

Based on the respective telcos’ 1QFY13 results, most of the companies’ FY13 key performance indes (KPI) targets remain largely intact with the exception of Celcom’s earnings before interest, tax, depreciation and amortisation (EBITDA) annual growth target, where the company has a harder task to make up the balance in the remaining next three quarters to achieve its FY13 KPI target.

“Meanwhile, DiGi remains optimistic in achieving its EBITDA margin target despite recording a lower number in 1QFY13 (43.7 per cent versus 46 per cent in earnings guidance).

“It believes that its margin will normalise to circa 46 per cent in the 2Q and 3Q as a result of higher service revenues, lower operating costs as well as softening handset sales.”

Expanding 4G services coverage

Kenanga Research highlighted that both Maxis and Celcom have entered into a rapid network coverage expansion mode for their 4G services that had been launched since early of the year.

Maxis, it added, is reported to have about 130,000 4G users, mainly from the Klang Valley areas with aims to expand its coverage to Penang and Johor from 2Q onwards.

“Meanwhile, Celcom has deployed its 4G service on 70 sites located mainly in the Klang Valley with an aim to expand its coverage to 1,200 sites nationwide by February 2014,” Kenanga Research explained.

“We understand that Celcom’s 4G network was restricted to USB modem users previously but has since been extended to small screen users since mid-June. DiGi, on the other hand, is targeting to unveil its LTE roadmap within the next few weeks.

“We believe telcos will gradually move to tier pricing data plans to maximise their data revenues that are expected to surge noticeably in the future under the 4G wave.”

Key events to watch

Looking forward to the latter half (2H) of the year, the research firm anticipated an interesting period to come with various key events or catalysts to watch out for.

For Maxis, we are waiting for updates on its new management team as well as the take-up rate of its Maxis-Astro IPTV service,” it said.

“For Axiata, investors are likely to focus on its key operating subsidiaries’ competition environment (especially XL Axiata), the regulations issue in Idea Cellular, Celcom’s LTE plan, fibre plan being bundled with TM’s high speed broadband (HSBB), as well as investments in Myanmar.

“DiGi, on the other hand, will see attention on the progress of its Business Trust formation as well as its on-going network modernisation and collaboration plans.

“Meanwhile, for TM, a clarification of the competition landscape in its fibre broadband segment as well as lesser concerns on its revenue KPI could provide some re-rating catalysts to the share price.

“For REDtone International Bhd (REDtone), the events to watch out for the company during the next few months are its 4QFY13 result – which the group is set to make record-high profits – and the bidding outcome of the digital terrestrial TV broadcast (DTTB) contract.”