The telco sector showcased resilient earnings during the just-concluded 4QCY22 results season, stocks under Kenanga watch like AXIATA, CDB, and OCK exceeded expectations whilst MAXIS and TM underperformed on account of higher-than-expected depreciation charges and tax expenses largely incurred in the fourth quarter.
The telcos as a whole saw commendable growth for CY22 with top line posting a 6% YoY uptick and core net profit ending higher 8% YoY on account of a strong EBITDA (9MCY22: 8% YoY) mostly coming in 9MCY22, contributed largely by AXIATA and TM. The reopening of the domestic and regional economies saw continued demand for telecommunications as consumers
moved on from the pandemic. AXIATA saw a 10% top-line uptick on generally strong all-round performance from its
operating companies with the exception of Dialog (Sri Lanka) and Ncell (Nepal) but earnings surged 21% on strong
contribution from Celcom (65% YoY) and Smart (Cambodia at 14% YoY). CDB and TM saw an earnings uptick of 9%
and 28%, respectively, as EBITDA improved 8% and 14% respectively. AXIATA’s EBITDA improved 11%.
Robust subscribers.
Subscribers’ growth saw improvements YoY and QoQ, both regionally and domestically. AXIATA subscription was boosted by DIALOG and Ncell (Nepal) growing at 9% and 2%, respectively, despite inflationary pressures. Local subscriptions were led by TM which saw 13% YoY growth on competitive pricing, strong promotion, and the promise of 5G services or broadband services. Blended ARPU was mixed as all players (local and regional) saw improvement YoY and QoQ with the exception of Ncell (-10% YoY and -5% QoQ).
Moving ahead the research house remains positive on the sector’s outlook premised on resilient demand from both consumers and businesses, locally and regionally. Players like CDB looks set to benefit from the return of migrant workers. Demand for local mobile and broadband will be supported by wider coverage towards the completion of Phase 1 of the Jendela initiative. According to MCMC, almost 97% of populated areas have access to a 4G network (92% before Phase 1 of
Jendela) with average mobile broadband speed increased to 52Mbps (35 Mbps initially). The promise of the 5G
the rollout will boost demand further with players like AXIATA and OCK benefitting from the construction and fiberisation
of more 5,500 towers under the next phase of the 5G rollout.
With this, the house maintains OVERWEIGHT with sector top picks of AXIATA, CDB, and TM, however it is to be noted that the market has priced various challenges related to the 5G rollout. Despite lowering the TP on most of the telco stocks, valuations are still compelling.
