Asia-Pacific telcos to face slower revenue growth: Moody’s

Moody’s Investors Service expects stronger competition for the Asia Pacific (APAC) telecommunications sector and stronger commoditisation, and slower revenue growth for companies across 11 markets in the region, including Malaysia. The other markets are Hong Kong, India, Indonesia, Japan, Korea, the Philippines and Singapore.

The rating agency’s report entitled “Telecommunications – APAC: 2019 Outlook” noted that while slower overall revenue growth will be evident in all 11 markets, the emerging market is expected to see a more pronounced slowdown with revenue growth to fall to 3-3.5% in 2019 versus the 3.9% in 2017.

“Comparing overall revenue growth across APAC with GDP (gross domestic product) growth, Moody’s says that companies as a whole will show modest revenue growth of 2-2.2%, with such growth lagging average GDP growth of about 4.6% for the region,” said Moody’s vice-president and senior analyst Nidhi Dhruv.

Meanwhile, new entrants are expected to intensify competition in Singapore, Japan and Australia.

High shareholder returns and capital expenditure levels will continue to temper free cash flow generation, which will consequently make companies to look into diversifying revenue as traditional telecommunications revenues contract. This will eventually lead to more cross-industry partnerships.

Additionally, while 4G will remain the dominant technology used by telecommunications companies in APAC, 5G will gain some traction in 2019-20.

Japan, Korea and Australia are expected to lead the region in rolling out 5G services in 2019.

Nevertheless, Moody has given a stable outlook for the sector in APAC 2019, with companies in the region likely to show relatively stable leverage and debt levels over the next 12-18 months.
Moreover, while liquidity is weakening, it remains supported by the companies’ access to the banks and bond market at current levels.