KUALA LUMPUR: Malaysian telcos are expected to report lower earnings in the fourth quarter (Q4) of 2020, according to Affin Hwang Capital.
This will be due to lower service revenue and higher provisions for doubtful debts while Telekom Malaysia Bhd’s (TM) profitability may be affected by backend-loaded expenses, despite the robust revenue.
Affin Hwang said the telcos’ mobile service revenue would likely slip by up to 2.0 per cent year-on-year (YoY) in 2021.
Its analyst Isaac Chow said the local telcos might brave the tough year amid the Covid-19 pandemic, weak economic recovery and stiff competition.
Their business will be partly cushioned by the government’s RM1.5 billion telco credits for the B40 group.
“We forecast Digi.Com Bhd, a mobile pure-play, to see a 1.0 per cent earnings decline in 2021 while Maxis Bhd may see earnings growth of 2.3 per cent driven by revenue from its fixed and enterprise segments that more than offset a decline in mobile service revenue,” he said in a report today.
Against a low base, he said Axiata Group Bhd might see the highest 2021 earnings growth of 26 per cent, driven by recoveries in overseas markets and lower losses from the digital businesses.
“For exposure to the mobile segment, we prefer Maxis to Digi for its positive financial year of 2021 to 2022 earnings outlook and first-mover advantage in developing converged solutions.”
Chow said demand for fixed broadband had grown during the nine-month of 2020 (9M20) due to an increase in work- from-home/remote study arrangements.
The trend was expected to continue in 2021, he said.
Chow said the work-from-home and remote study arrangements had spurred demand for fixed broadband services, mainly TM and TIME dotCom Bhd, which had reported higher revenue in the second quarter (Q2) and third quarter (Q3) of 2020.
TM had added a record 97,000 Unifi customers in Q3 of 2020, driven by strong underlying demand and its effective marketing campaigns.
“Looking into 2021, we expect the demand for fixed broadband to remain robust and support TM’s internet service revenue and profitability,” he said.
Meanwhile, weaker economy may also affect the telcos’ provisions for doubtful debts.
“We see a risk of higher provisions for doubtful debts due to the weaker domestic and regional economies.
“We expect telco’s capital expenditure (capex) in 2021 to increase to cater to the strong data usage growth, upgrading of 3G towers, and expansion of service coverage,” Chow said.