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Telecommunication sector analysts believe Malaysia telecom stocks ended 2019 with gains with Telekom Malaysia’s (TM) rebound being the sharpest as compared to the Big 3 (Axiata Group Bhd, Bhd, and Maxis Bhd). NST file pix

KUALA LUMPUR: Telecommunication sector analysts believe Malaysia telecom stocks ended 2019 with gains with Telekom Malaysia’s (TM) rebound being the sharpest as compared to the Big 3 (Axiata Group Bhd, Bhd, and Maxis Bhd).

As at January 3, 2020, TM’s share price has gained 47.15 per cent in total return year-to-date (YTD).

In comparison, TIME dotcom YTD total return is at 13.16 per cent, Axiata Group Bhd at 9.95 per cent, Digi.Com Bhd at 3.37 per cent and Maxis Bhd at 1.28 per cent.

MIDF Research said while it commends TM’s cost rationalisation programme which has significantly improves the group’s profit margin and profitability, concern remains on the group’s ability to grow its revenue, especially its unifi business which is the group’s main revenue contributor.

As for Digi, MIDF expects higher contribution from the pre-to-post conversion and B2B (business-to-business) lead to better earnings visibility in comparison to prepaid.

At present, Digi’s proportion of postpaid revenue as a percentage of total service revenue has improved further to 47.1 per cent from 41.9 per cent a year ago.

The estimated dividend yield of at least four percent will keep investors to remain vested on Digi, the research house noted.

For Maxis, MIDF views the diminishing income from U Mobile has greatly affected the group’s profit margin and, subsequently, earnings.

To regain the loss in revenue, MIDF noted that the group is repositioning itself to become a converged communications and digital services company.

"However, we view that there are gestation period before it could substitute the loss of income from U Mobile. Coupled with competition from its peers, we do not expect the group to be able to offset the loss of contribution from U Mobile organically in the near term,” it said.

The firm also expects Maxis’ dividend yield to remain below four per cent to focus on executing its new strategy.

MIDF has maintained its 'Neutral' recommendation on Digi and TM with an unchanged target price of RM4.93 and RM3.54 respectively, and with a 'Sell' call on Maxis with lower target price of RM4.61 from RM4.68.

As for Axiata, Kenanga Research believes the telco player is on track in building up its sustainability, despite there may be 'many moving parts' in the group.

"Sentiment for the stock could have been bashed with the cancellation of the merger with Telenor.

"However, we believe that developments of other potential tie-ins could reinvigorate interest, presenting a decent risk-to-reward backed by a guarded earnings outlook,” it said.

Kenanga has maintained its 'Outperform' stance on Axiata, with an unchanged target price of RM4.80.

Moving on, among the telecom trends could be seen in 2020 would be higher consumer-driven data consumption, fuelled by the mobile and broadband services in Internet of Things (IoT) devices, putting unprecedented pressures on networks.

Industry players and observers also believe these telecom trends continue to gain momentum while fresh ones are also expected to emerge and steer the sector in new directions.

Notably, Maybank Kim Eng (KE) Research said while 2018 saw declines in Malaysia’s telco stocks, 2019 was the year for share price recovery for telco players.

The research house said operationally, the overall dynamics in the mobile space was largely unchanged in 2019, with Big 3 revenue declined for the sixth consecutive year, partly exacerbated by lower inter-connect rates.

"There was no material development on spectrum. The fixed space meanwhile saw margins surprising on the upside, with the impact of lower retail broadband prices seemingly contained. TM surprised the market by announcing its intention to play the role of a national 5G InfraCo in a public consultation submission," it said.

For 2020, Maybank KE said 5G capex risk could begin to feature this year should the regulator succeed with its 2H20 5G-deployment target.

"For now, we still expect telcos capex to be relatively manageable given the likelihood for increased infrastructure sharing.

"Separately, given the emphasis on infrastructure sharing, the relevance of a single 5G infra-co model now appears diminished, in our view,” it said.

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