(Sept 11): The rally in Southeast Asian telecommunications shares this year is unsustainable, given the weaker pace of data revenue growth, according to DBS Bank.
The sector’s recent outperformance versus country indexes has been mostly driven by high dividend yields as well as merger and acquisition activity, especially for names like Malaysia’s Axiata Group and DiGi.Com, analysts Sachin Mittal and Woo Kim Toh wrote in a note.
Both of those stocks are still in the green this year despite steep declines Tuesday after talks about a business combination were called off. Meanwhile the FTSE Bursa Malaysia KLCI Index is down more than 5% in 2019, the worst-performing market in Asia.
In Thailand, Total Access Communications has climbed 36% this year, more than five times the gain in the country’s benchmark. DBS cited increased MSCI index weightings for Thai telecom stocks and easing competition. And investors such as Janus Henderson Group have been eyeing the sector’s dividends.
“Our income fund is overweight Thailand, where we like the telecom part of the market, including the telecom infrastructure-supporting stocks and the telcos themselves,” said Andrew Gillan, head of Asia ex-Japan equities at Janus Henderson Investors in Singapore.
Meanwhile, Southeast Asian data revenue growth has slowed to less than 15%, and this is key as data comprises about 65-70% of the topline for many carriers, the DBS analysts wrote. That level is just “barely offsetting” the decline in the companies’ voice and text message revenue, Mittal and Toh said.
DBS still likes telecoms in Indonesia, which it says is “the only market where data revenues are still growing 25-30% per annum.” The analysts prefer XL Axiata, where data comprises 87% of revenue. They also favour Sarana Menara Nusantara for its estimated 40% discount to peer Tower Bersama Infrastructure.
