TEXT-Fitch:SE Asia telcos fit to meet capex, margin challenges
(The following statement was released by the rating agency)
Nov 15 - Fitch Ratings said in a new report that south-east Asian telecommunications companies (telcos) are likely to face margin pressures in 2013 as competition intensifies.
"Demand growth is likely to match or outpace the decline in margins and growth in investment and credit metrics will generally be stable or slightly improved," said Steve Durose, Head of Fitch's Telecommunications, Media and Technology team in Asia-Pacific. "In the cases where credit metrics will decline, Fitch expects few rating downgrades as these operators generally have significant headroom at their current rating level."
In Indonesia, Fitch expects the dominant top-four operators will generate adequate cash flow from operations (CFO) to support continued high capex. Smaller telcos will continue to struggle amid declining tariffs, low profitability and weak balance sheets.
In Malaysia, most telcos will maintain their operating EBITDAR margins due to stable voice tariffs and rising data revenue. Wireless telcos' free cash flow (FCF) margins will remain robust as capex will stay relatively low. Telekom Malaysia's (TM, 'A-'/Stable) capex peaked in 2012 as it completed the majority of its high-speed broadband (HSBB) network expansion. Competition in data could intensify with the launch of 4G and the entry of resellers into the market, who will retail capacity leased from TM's HSBB.
In the Philippines, price competition will lead to continued margin erosion in 2013 despite the duopoly market. Volume growth is likely to be insufficient to offset margin decline, and therefore Fitch expects the telcos' CFO to be weaker. However, leverage will improve as FCF is likely to turn positive due to lower capex - with the completion of major network investments in 2012.
All three Singapore telcos are likely to face pressure on operating EBITDAR margins due to continuing smartphone subsidies and pay-TV content costs, despite better data monetisation prospects. Nevertheless, solid FCF generation and relatively low capex/revenue should maintain credit profiles.
Fitch's positive outlook on the Thai telecom sector is based on the agency's expectation that the operators will be less exposed to policy and regulatory risks following the issuance of 3G licences. Technology upgrades to 3G should also support the growth in non-voice revenue, given an improvement in data network quality. Credit metrics may deteriorate due to high capex and licence fees, but the two largest mobile operators should have sufficient headroom in their ratings.
The report provides further details on Fitch's expectation of margins and competition, product development and take-up, capex and investment and regulatory or structural changes in the telco markets in these five countries.
The report, '2013 Outlook: South-East Asia Telecommunications - Capable of Meeting Capex, Margin Challenges', is available on www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings' Report: 2013 Outlook: South-East Asia Telecommunications
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