Telcos still win despite one off reconfiguration costs

PETALING JAYA: Public Investment Bank Bhd (PublicInvest) said the benefits of passing on the goods and service tax (GST) charge to consumers will outweigh the additional costs of re-configuring the telcos systems.
"We believe Digi will be the biggest beneficiary as it derives the highest percentage of revenue (73% in FY14) among key mobile players from the prepaid segment," it added.
The research firm has maintained its "neutral" outlook on Malaysia's telco sector.
Communications and Multimedia Minister Datuk Seri Ahmad Shabery Cheek said on Wednesday that the government has allowed telcos to pass on the GST charge to consumers, but instead of the current system of charging the 6% on reload, the charges will now be based on usage.
PublicInvest said in a research report yesterday, the key players will benefit from the new framework as they will be able to pass on the 6% GST on prepaid services.
"While telcos will incur additional costs to reconfigure their systems and produce new prepaid top-up cards, we believe the benefits of GST on prepaid services will outweigh the additional costs of reconfiguration to collect GST based on usage," it said.
Meanwhile, AmResearch Sdn Bhd said while the outcome is positive for the telcos where they will finally get to pass on GST to consumers, there is likely to be elasticity and impact on usage.
"Based on our checks with the telcos (and to their understanding), under the new pay-per-use GST system, the chargeable GST amount is taken out of prepaid credits, which essentially means that out of a RM10 reload (and assuming full usage), consumers only get RM9.40 of actual credit."
"This model in itself can impact usage, on top of ultra-price sensitive prepaid users which might simply pare usage given the higher effective cost," AmResearch said.
Axiata remains AmResearch top pick with a fair value of RM7.80 per share, because of Celcom Axia Bhd turnaround in 2H15 performance, having resolved its network issues and the potential benefits it is to reap being at the tail end of its information technology (IT) revamp.