KUALA LUMPUR: Malaysia’s telecommunications companies are expected to show a better fourth quarter (4Q) when they report their full-year results over the next few weeks.

“We believe that Malaysia’s telcos enjoyed higher profits in the fourth quarter of 2009, thanks to festivities, wireless broadband, subscriber growth and an improving economy.

“The chief beneficiaries were probably Celcom and Maxis. We do not expect nasty surprises and also do not rule out higher-than-expected dividends at DiGi.Com Bhd and Maxis Bhd,” said CIMB Research.

According to the research house, the main battleground for 4Q for the telcos was broadband.

“This segment saw very intense marketing campaigns by Green Packet, TM and Maxis. Green Packet got a lot of publicity with its ‘Cut Now’ campaign that urged fixed broadband users to cut their subscription.”

“In response to Green Packet’s campaign and its own five straight quarters of declining net adds, Telekom launched its ‘Super Upgrade Deal’ campaign while Maxis initiated aggressive cross-selling of its wireless broadband service by dangling two months of free subscription to selected postpaid users. Celcom was relatively quiet during the quarter as it tackled its capacity constraints,” said CIMB.

The research house noted that competition in the voice segment remained benign except for the migrant worker segment.
CIMB has a neutral recommendation on the sector, with Axiata Group Bhd as the top pick.

The research house has an outperform on the stock with a sum-of-parts-based target price of RM3.86 and is expecting its net core profit for 4Q to increase by 12% (RM480 million) to 19% (RM510 million) quarter-on-quarter (q-o-q).

“We expect Axiata to repeat its strong growth of 3QFY2009 in 4QFY2009 and surprise the market on the upside. However, we do not rule out a write-down of its investments in Idea Cellular as Idea’s share price has fallen,” said CIMB.

Axiata closed four sen higher at RM3.47 on Jan 21, with over 26 million shares changing hands.

Regardless, CIMB said it believed the main earnings drivers for the last quarter were Celcom and XL Axiata. According to CIMB, Celcom’s growth was driven by voice and wireless broadband, while XL’s preliminary results have come in above expectations.

Axiata is expected to release its results at the end of February.

The research house is less optimistic on the prospects of Telekom Malaysia Bhd and DiGi, where it has pegged both with an underperform recommendation.  

“We rate Telekom an underperform in light of surging competition in broadband, erosion of its fixed line revenue and uncertainty over the take-up of highspeed broadband,” said CIMB.

The research house is expecting Telekom’s 4QFY2009 core net profit to come in flattish q-o-q at RM90 million to RM95 million. Telekom ended on Jan 21 at RM3.19, up one sen, and is due to announce its results on Feb 22.

For DiGi, CIMB believes that its growth will lag behind its rivals as a result of its smaller wireless broadband network and lower-end subscriber base.

“We expect DiGi to continue losing ground to Celcom in 2010 as the second largest operator homes in on urban and youth users where DiGi has a substantial base,” said CIMB.

However, DiGi’s main attraction will be in its dividends according to CIMB that could surprise on the upside. DiGi closed unchanged at RM21.88 and is due to announce its results on Feb 3.

CIMB is neutral on Maxis, stating that the country’s largest telco lacks price catalysts.

While wireless broadband and mobile data are key drivers for Maxis, their contribution is still fairly small, at about 10% of revenue. Also, Celcom is making significant inroads into Maxis’ urban and youth strongholds. But the downside risk is limited by Maxis’ fairly attractive dividend yields of 8% to 9%, said CIMB. Maxis ended on Jan 21 unchanged at RM5.40 and is expected to announce its results on Feb 19.