TELCO operators in emerging markets will see revenue grow faster than in developed markets due to relatively lower penetration rates.
Such is the underpinning premise of Moody’s Investors Service’s stable outlook of Asia-Pacific telcos in 2021.
The essential nature of APAC telecommunication services has limited the sector’s exposure to pandemic-related disruptions and should support moderate revenue growth and relatively steady earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins in 2021, according to the credit rating agency.
“We expect revenue growth of 3.5%-4.0% in 2021 as the sector gradually recovers from a COVID-19-led decline in the first half of 2020,” Moody’s noted in its latest report entitled Telecommunications – Asia Pacific: 2021 Outlook.
This revenue growth lags behind average gross domestic product (GDP) growth of 5% for the 11 APAC countries with rated telcos in 2021 given the maturity of the sector.
Specifically on Malaysia, the report expects mobile revenues to be flat owing to intensifying competition and sub-optimal data pricing despite growth in data usage. It further predicts declines in fixed-line revenue due to lower voice usage and more affordable pricing of broadband services.
For Indonesia, Moody’s expects revenue growth to be modest at around 3% despite significant growth in data usage. However, intense price competition in data services amid a weak economic backdrop will restrict data revenue growth.
Meanwhile, rising data consumption and broadband usage is likely to drive revenue growth in the Philippines although this will be partially offset by declines in legacy voice and messaging services.
Given revenue increases, aggregate adjusted EBITDA will grow 2%-3% in 2021 after just 0.1% growth in 2020 while EBITDA margins will remain stable at around 37% as telcos cut costs and delay capex in a more difficult economic environment, according to Moody’s vice president and senior analyst Nidhi Dhruv.
“Although operators’ capex will decline marginally, it will remain high at about 22% of revenue on average in 2021, well above the US and European telcos’ ratios,” projected Dhruv.“But most companies should be able to fund their spending largely with internal cash.”
Elsewhere, Moody’s expects free cash flow to remain negative but some reduction in shareholder returns will lead to gradual improvement.
“Meanwhile, the adoption of 5G technology varies across the region with South Korea leading the pack followed by China, Japan and Australia,” added the credit rating agency. – Dec 3, 2020
