business

Big 3 telcos Q1 performance 'collectively disappointing'

By FARAH ADILLA

KUALA LUMPUR: The telecommunications sector's first quarter (Q1) results performance has collectively been disappointing as Digi.Com Bhd, Maxis Bhd and Axiata Group Bhd come in below analysts' expectations.

The weak performance has also led to the companies withdrawing or reviewing their financial year 2020 guidance for revenue, gross profit and capital expenditure due to the uncertain Covid-19 impact on net subscription rates.

Axiata was the last of the "Big Three" to release its Q1 results, when on May 21, it announced a 74.1 per cent plunge in net profit to RM188.11 million from RM725.17 million in the quarter ended March 31 2019.

Digi had on April 23 announced that its Q1 net profit fell 2.78 per cent to RM332 million from RM341.5 million a year earlier.

A day later, Maxis said its Q1 net profit fell to RM358 million from RM409 million a year earlier although its revenue was higher at RM2.34 billion versus RM2.23 billion.

Maxis also withdrew its previously advised guidance for the year ending December 31, 2020 until there was more clarity around the longevity and impact of the Covid-19 pandemic.

AmBank Research (AmResearch) said the cellular operators' (celcos) Q1 core net profit had fallen 7.0 per cent quarter-on-quarter (q-o-q) to RM869 million.

This was largely due to lower revenues and higher depreciation charges which included IFRS 16 lease charges and traffic costs.

AmResearch added that this was exacerbated by lower subscribers for Axiata's unit Celcom Axiata Bhd's postpaid and prepaid segments which experienced IT delays in new launches amidst Covid-19 movement restrictions.

The sector's total subscriber trajectory continued its downward trend after a brief uptick in Q2 2019 amid the still intense mobile competition.

Mobile subscribers, meanwhile, decreased by 580,000 q-o-q as prepaid declines of 704,000 were only able to be partially offset by postpaid additions of 124,000.

AmResearch said only Maxis had registered a 91,000 net increase while Celcom declined by 390,000 subscribers and Digi by 281,000 subscribers..

Celcos' service revenues fell 9.0 per cent q-o-q to RM5.5 billion largely from the prepaid segment for all operators and to a lesser extent, Celcom's postpaid segment, stemmed from lower subscribers together with lower average revenue per user (ARPUs) for both divisions as blended ARPU contracted RM3 per month q-o-q to RM45.70 per month.

AmResearch maintained its "neutral" outlook on the sector given the unmitigated mobile competition amid escalating capex requirements against the backdrop of the National Fiberisation and Connectivity Plan agenda to improve national connectivity and affordability.

Its only "buy" call recommendation currently is Axiata, given its low enterprise value per earnings before interest, taxes, depreciation and amortisation valuations and rising prospects for monetisation of its multiple businesses.

Kenanga Research said Axiata's Q1 core profit of RM124.7 million had missed its and consensus expectations, merely making up 13 per cent and 11 per cent respectively of the full-year estimates.

The negative deviation could be mostly attributed to the wider losses from non-operating company (OpCo) businesses.

"In comparison, total normalised earnings from regional OpCos saw flattish growth of one per cent," Kenanga Research added.

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