Rise in telco data services revenue to continue in 2H

Rise in telco data services revenue to continue in 2H
Business & Markets 2013
Written by Charlotte Chong of theedgemalaysia.com
Tuesday, 17 September 2013 10:44

KUALA LUMPUR: Analysts expect the rising trend of data services revenue to continue in the second half (2H) of the year, riding on strong demand for smart phones and slate devices.

The telecommunications sector saw double digit growth in its data services revenue in 1H, cushioning a dip in voice and short message service (SMS) usage. This resulted in flattish revenue for the sector in 1H.

CIMB Research analyst Kelvin Goh told The Edge Financial Daily that the double digit growth in data revenue for 2H would be maintained.

“SMS has been on a long-term decline,” he said, adding that the decrease is due to an increased usage of data applications such as Whatsapp on smart phones.

In a report dated Sept 12, Goh said the implementation of the goods and services tax (GST) should be positive for mobile operators as they would be able to pass on the 6% sales tax on prepaid revenue that they had been absorbing.

CIMB Research maintains a “neutral” rating on the sector as the GST is not expected to have a significant impact on the industry’s earnings.

“Moreover, GST is only expected to be introduced in 2015,” it said.

HwangDBS Vickers Sdn Bhd analyst Chin Jin Han said voice revenue is expected to decline year-on-year in 2H.

He said although voice is taking a backseat to non-SMS data revenue, “it is seeing some resilience with mixed performance in certain quarters”.

According to Chin, the drop in voice revenue differs from one operator to the other.

“What we can see is that voice and SMS are falling in terms of revenue mix rather than absolute drops.

“SMS, however, is a different story as substitution and ongoing competition between mobile virtual network operators and operators are diluting the revenue mix,” he said.

HwangDBS maintains “underweight” on the sector. Similarly, RHB Research also has an “underweight” on the sector due to a lack of catalysts while valuations remain stretched amid the rising bond yields.

A recent report by Credit Suisse showed that the local telecommunications sector’s revenue grew only 1% year-on-year (y-o-y) in 1H.

During the period, data revenue grew up to 17% y-o-y, while voice slipped by 2% and SMS fell 12%.

The report said voice still accounts for 60% of second quarter (2Q) service revenue while SMS accounts for only 12% of industry revenue.

“Data revenue rose to 27% of 2Q service revenue, up from 21% in 2Q of 2011,” it said.


This article first appeared in The Edge Financial Daily, on September 17, 2013.