RHB “underweight” on teleco sector, sees moderate growth in 2014

KUALA LUMPUR (Dec 5): RHB Research Insitute Sdn Bhd maintains its
“underweight” call on the telecommunications sector as it faces headwinds in
monetizing data, while short message service (SMS) revenues are eroding.
The research house stated that the erosion in SMS revenue is due to rising
over-the-top (OTT) usage.
“Three out of the five companies under our coverage (Axiata, Maxis and TIME
dotCom) reported results that were within our expectations.
“The remaining two companies, Telekom Malaysia and DiGi.Com, delivered
earnings above our estimates due to stronger-than-expected tax incentives that
boosted bottomlines,” said RHB in its note.
For the third quarter of 2013, Telekom Malaysia was the only company with a
material change in earnings out of the five companies, as it recorded lower cost
pressures and higher high-speed broadband (HSBB) related tax incentives.
On its outlook for the telecommunications sector, RHB expects industry
revenue growth to moderate to 4.6% in 2014, from 5.6% in 2013, due to SMS
revenue “facing cannibalisation from substitution to data.”
RHB believes that unless data monetization is made more effective, the
revenue growth for the industry will moderate in 2014, adding that sensible data
pricing is key to ensure proper monetization of data.
“With no further expectations of tax incentives after their expiry in 3QFY13, we
believe the prospect of positive earnings surprises in 2014 will be minimal,”
said the research house.