We maintain Neutral on the sector as valuations are not cheap. 1QCY13 was a satisfactory quarter with TM surprising on the upside. Based on the 1Q13 results so far, we believe the industry is on track for mid-single digit revenue growth in 2013. But earnings growth for the sector will be challenging as we expect flattish growth, primarily dragged down by Axiata. TdC remains our top pick.
- Satisfactory 1QCY13. Four (Axiata, Maxis, DiGi, TdC) out of five companies under coverage were within our expectations, with the exception of TM, which outperformed primarily due to tax incentives related to its high-speed broadband investments. We believe consensus’s FY13 EPS estimates for TM will likely be revised upwards following management guidance that TM’s effective tax rate will only be around 10% due to high-speed broadband related investments. This, we believe, was largely unanticipated as management’s prior guidance was for its effective tax rate to normalise towards the statutory
level in FY13.
- Sequential revenue growth moderated as expected. Sequential revenue growth for the sector moderated as expected, and was supported mainly by very strong handset sales. Service revenue growth was flattish due to seasonality following the festivities in 4Q12 and the shorter working period in 1Q13. Following the seasonally soft 1Q, we believe the sector’s sequential revenue growth will pick up going forward with emphasis returning to the large screen segment on the back of wider LTE network coverage rollout.
- Better EBITDA margins. Costs were quite well managed in 1Q and all the telcos saw better EBITDA margins, with the exception of DiGi. Although DiGi’s 1Q EBITDA margin of 43.7% was below management’s guidance of 46%, management foresees a recovery upon selling less handset bundles going forward.
- Outlook. Based on the 1Q13 results so far, we believe the industry is on track for mid-single digit revenue growth in 2013. We note that voice revenue may struggle to remain stable in 2013 due to low-to-mid single digit y-o-y declines in 1Q13, but it is still early days. Growth in the fibre market remains quite strong as UniFi’s subscriber growth momentum remains largely intact. Earnings growth for the sector will be challenging as we expect flattish growth, primarily dragged down by Axiata.
- Neutral on sector. We only have a Buy call on TdC for its cheaper valuations compared to its domestic peers and strong growth prospects in the regional bandwidth business.
Source: RHB
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TMCreated by kiasutrader | Jun 14, 2016
Created by kiasutrader | May 05, 2016
necro
Only TDC Buy?
2013-06-06 17:12