AmWatch - Telecommunication Sector : Chasing volumes? (1) NEUTRAL

STOCK FOCUS OF THE DAY

Telecommunication Sector : Chasing volumes? (1)            NEUTRAL

The recent FY14 earnings season for the telco sector saw mixed results, but generally reflects the struggle in monetising data despite the already steep fall in traditional voice and SMS revenues. Of the telcos we cover, Axiata underperformed, Digi and Maxis were in line, while TM outperformed our expectation.

However, earnings for TM, Maxis and Axiata were cut due to weaker-than-expected FY15F guidance and wider-than-expected losses from P1 (for TM). Our aggregate sector FY15F/16F earnings were reduced by 12%/10% post result season.

FY15F revenue growth guidance of low-single digit and flat to low-single digit EBITDA growth were quite disappointing, given:- (1) fairly good development of LTE networks, which reached 32%-33% pop coverage as at end-FY14 and targeted to reach circa 50% by end-FY15F (for Maxis and Digi); and (2) GST impact kicking in which should benefit celcos as they can pass on the current prepaid tax. Most celcos however guided for some weakness in 1Q15 arising from the carryover impact of the recent floods in the East Coast, in particular, the distribution channels that were impacted badly. 

We remain NEUTRAL on telcos: Axiata (BUY, FV: RM7.90/share) is our top sector pick for:- (1) a turnaround in Celcom performance in FY15F having resolved its network issues and is at the tail end of its IT revamp; (2) a structurally improved XL from 2H15 once it is through its transition to a value driven business model; and (3) best potential for a dividend surprise – low net debt to EBITDA of 1.2x vs. ceiling of 2.5x, one of the better positioned GLCs to increase dividend upflow to Khazanah.

Others :

Jaya Tiasa Holdings : Yield critical               BUY

QUICK TAKES

CapitaMalls M’sia Trust : No surprises; rental reversion of +3.6%               HOLD

Telecommunication Sector : HyppTV reaching out into the mobile space (2)                                         NEUTRAL

NEWS HIGHLIGHTS

Axiata Group : Dian becomes Axiata group’s first female CEO

Eco World Development Group : RM1bil 190ha mega deal, set to be big player in Penang

Malaysia Building Society : Aims to be an Islamic bank in 5 years

AirAsia : Sees sales boost after tie-up with UnionPay

Oil & Gas Sector: Petronas: No job and salary cuts

DISCLAIMER:

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