KUALA LUMPUR – AmInvestment Bank Bhd has maintained its “overweight” rating on the telecommunication sector (telco) with “buy” calls for Telekom Malaysia Bhd (TM) and Axiata Group Bhd.
It said TM had shown significant cost improvements together with more compelling dividend yields, while Axiata offered bargain enterprise value to earnings before interest, tax, depreciation, and amortisation (EV/Ebitda) valuations with multiple opportunities for monetisation as the group aims for higher dividend payout policies.
As at 12.30pm today, TM’s share price fell 20 sen to RM5.17 while Axiata rose two sen to RM3.86.
In a note today, AmInvestment bank said the telco sectors’ third-quarter (Q3) 2020 results had shown substantive improvement with Axiata and TM beating market expectations while Maxis Bhd and Digi.Com Bhd were in line with consensus.
“The top outperformer was Axiata which registered a sharp rebound in revenue growth and cost reduction following Covid-19 restrictions on subscriber accretions in the second quarter of 2020.
"TM’s results were nevertheless within our expectations as we have incorporated higher cost reduction assumptions," it said.
The investment bank also said that consolidation among the service providers was likely to reduce costs, secure economies of scale, and reduce rivalry as a result of declining data yields, new 5G spectrum fees and capital expenditure pressures.
"While the MCMC has shown a preference for maintaining competitive pressures to provide reduced broadband prices for consumers, we maintain our view that industry players will likely engage in merger and acquisition activities, which was reaffirmed during Axiata’s Analyst and Investor Day conference yesterday,” it said.
Meanwhile, AmInvestment said Digi has now retaken its pole position in the prepaid segment with the highest market share of 38% from Maxis which has fallen to 35%.
“Nevertheless, Maxis’ postpaid subscriber focus and convergence strategy with its fibre broadband services remains formidable as compared to Digi and Celcom. – Bernama, December 4, 2020
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