Moody's: Stable Outlook for Asia Pacific Telecoms Industry

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Moody's Investors Service says the stable outlook for the telecommunications industry in Asia Pacific over the next 12 18 months reflects Moody's expectation of moderate revenues and earnings growth in the sector despite the likely gradual declines in margins.

"The telecommunications companies that we rate in Asia Pacific should record average revenue growth of around 4% over the next 12-18 months, a level which is broadly in line with average GDP growth rates in the region," says Yoshio Takahashi, a Moody's Assistant Vice President and Analyst.

"Increased data usage on mobile phones will continue to drive the industry's revenue growth, although rising mobile-penetration rates and competition will slow the pace of growth," adds Takahashi.

Moody's analysis is contained in its just-released report titled "Asia Pacific Telecommunications Industry Outlook Update: Increasing Data Services Will Drive Revenue, Earnings Growth While Squeezing Margins," and is co-authored by Takahashi and Maisam Hasnain, an Associate Analyst.

Moody's report says that while average adjusted EBITDA margins in the region will contract by approximately 0.5%-1.0% next year -- given continued competition, as well as increasing revenue contribution from data revenues with lower margins -- the margins will stay at 37%-38%, a level which is consistent with the margins of major European telecommunications companies, most of which are rated in the A to Baa range.

"However, overall absolute EBITDA should continue to grow, supported by overall revenue growth," says Takahashi.

"Moreover, the firms' capital spending as a percentage of revenue will decline to around 20%, as most firms complete their 3G or 4G rollouts," adds Takahashi.

"But leverage will remain moderately high, as the companies deploy excess cash to increase shareholder returns, rather than significantly reducing debt."

Moody's report says that as the industry continues to show signs of maturity (slower earnings growth and stabilizing levels of capex), many companies will consider increasing dividend payouts, paying special dividends or buying back shares.

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