Celcos to feel pinch in profitability as leverage rises: RAM

PETALING JAYA: The leverage indicators of Malaysian cellular operators (celcos) are expected to gradually deteriorate in this maturing and slower growth environment, said RAM Ratings co-head of infrastructure and utilities ratings Davinder Kaur Gill.
This depends on factors such as intensity of competition in the industry and the magnitude of any larger-than-expected capex, in addition to impending spectrum fees.
Despite the introduction of spectrum assignment fees for 900MHz and 1800MHz bands last year, the rating agency said the financials of celcos have remained resilient.
The debt-to-OPBDIT (operating profit before depreciation, interest and taxes) ratios of all incumbent celcos rose to 1.81 times from 1.53 times the previous year, subsequent to the funding of spectrum costs with borrowings.
While RAM expects mild contraction in the mobile industry’s revenue growth in 2017, profitability and margins are anticipated to stay flattish.
In comparison with regional peers, RAM noted that the Malaysian celcos continue to fare well despite stiff competition, as the profitability of incumbents remains superior to that of their counterparts in neighbouring countries.
The Malaysian average industry OPBDIT margin of 44.3% is among the highest in the region.
“While incumbents have resorted to trimming costs via digitalisation and other cost optimisation means to weather tough times, cost management strategies may, in our view, be limited and fully exhausted over a longer period,” she explained.
RAM Ratings also said the fixed-broadband space continues to hold prospects for growth given the ongoing rollout of the High-Speed Broadband 2 and suburban broadband projects.
“Although we observed a slowdown in the growth trajectory of TM’s fixed-broadband base, which stayed flat year-on-year in 2016 and 1Q 2017, substitutions of the lower-speed Streamyx for UniFi remained encouraging,” Davinder Kaur noted.