Economic value added (EVA)-based predictions has become more useful than earnings when it comes to predicting share price changes over five years in the telecommunications sector, according to a report by DBS on Asean’s telcos.
According to DBS analysts, their top picks are companies which capex have peaked and sharp EVA improvements are not priced in. Among their prime choices in the region are Singapore’s Netlink NBN, Singtel, and Malaysia’s Axiata Group.
Netlink NBN is trading below its book value despite generating positive EVA with 7 per cent regulatory return on its assets, offering 6.6 per cent yield with 4 per cent distribution compound annual growth rate (CAGR) over FY19-21, said DBS.
As for Singtel, DBS noted that its capex is on a downward trend led by lower capex in Australia and the share price implies only 2 per cent EVA CAGR over the next 10 years. It offers 10 per cent earnings CAGR over FY19-21 and fixed dividend of 17.5 Singapore cents.
DBS analysts said that Axiata’s capex is also on a downward trend, led by lower capex at Celcom and its share price implies only slightly positive EVA from 2020 onwards. It offers over 30 per cent earnings CAGR over FY18-20 led by Celcom and XL Axiata, and offers 4 per cent yield, said the report.
On a country level, Singapore is likely to witness about 5 per cent contraction in mobile revenue in 2019, driven by rising adoption of SIM-only plans, although capex has already peaked already, according to analysts.
TPG’s potentially weak launch in 2Q19 might lead to revenue stabilisation in Singapore from 2020 onwards, which could lead to street upgrades, it contnued.
In Indonesia, 7-8 per cent topline growth looks promising in 2019, but capex is likely to rise with 4G rollout outside Java, said the report.
The report also projected that Malaysia is set to see flattish growth in the mobile sector due to a milder competitive environment, while broadband is likely to see pricing edging downwards. Meanwhile, Thailand's mobile sector could see 2-3 per cent revenue growth in 2019 with average revenue per user being pressured by unlimited data plans.