Asean telcos face softer 2025 outlook, but asset sales offer silver lining

SOUTH-EAST Asian telcos have outperformed their global counterparts in 2024, but their prospects are likely to soften in 2025.

Still, telcos in certain markets, such as Singapore, Indonesia and the Philippines, could yet outperform as they monetise their non-core operations.

In a Jan 6 report, Maybank analysts downgraded the South-east Asian telecoms sector to “neutral”.

They predicted that the sector’s mobile and fixed revenue will increase by 3 per cent year on year in 2025, slowing from the 4 per cent rise in 2024. Margin growth is also expected to slow to one percentage point in 2025, from 1.5 percentage points a year earlier.

“Thailand and Singapore mobile revenue could be impacted by absence of reopening or increase in roaming (revenue), which lifted 2024,” Maybank said.

“Following a year of price increases in Thailand and the Philippines, we think further price rises would be challenging amid weak economic conditions.”

Smaller operators in markets such as Malaysia and the Philippines may also inflict further pain.

For instance, Malaysia’s U Mobile won its bid to run Malaysia’s second 5G network in November 2024, putting it in competition with original operator Digital Nasional Berhad.

While the analysts expect U Mobile to partner with fellow telcos CelcomDigi or Maxis to deploy this network, uncertainty around 5G network pricing and capital expenditure will weigh on the sector.

“That said, given the share price de-rating of mobile telcos in recent years, some of the risks could have been priced in, in our view,” Maybank said.

As for the Philippines, No 3 player, Dito Telecommunity, announced in November 2024 that Singapore company Summit Telco Corporation had agreed to acquire nine billion additional shares in the telco. This would bring Summit Telco’s shareholding to almost half of the company’s shares outstanding.

More funding

The analysts said that Summit Telco could provide more funding to Dito in the near to medium term to gain market share, which stood at 6.8 per cent as at the first nine months of 2024.

“Meanwhile, new management of both PLDT and Globe Telecom could be more defensive to try to protect market share. This could escalate into a price war in the mobile segment,” they said.

Still, the analysts suggested that consolidation could benefit Indonesian telcos XL Axiata and Smartfren post-merger, which could improve their margins and return on equity.

In December 2024, Malaysia’s Axiata group and Indonesia’s Sinar Mas Group agreed to a merger of their Indonesian telecom units.

Maybank’s analysts estimate that both companies could have a merged spectrum market share of 34 per cent, as compared to a revenue market share of 21 per cent.

“Admittedly, network integration post-consolidation would be a challenge and the balance sheet leverage will also be on the higher side.

“That said, given the gap in revenue and spectrum share of the mergedco, we see potential for the mergedco to strive for higher market share,” they said.

Money, money, money

Pockets of opportunity may also be found as some telcos seek to monetise their non-core operations and generate free cash flow.

In a Jan 10 report, Citi analysts said they expect “significant” free cash flow generation potential from the Asia-Pacific telecom sector, with an average free cash flow yield of 8 to 9 per cent for 2025 and 2026. This yield exceeds their average dividend yield of 3 to 4 per cent.

“This indicates a substantial cash surplus that could potentially drive dividend increases in 2025 and 2026, especially given the relatively low net debt to equity of Asia-Pacific telcos… and declining capex trends going forward with 5G build-outs now mostly behind,” they said.

The analysts highlighted Indonesian telco Telkom’s potential plan to sell a stake in its data centre business, which was reported to have been in progress in February 2024. This comes as the company has said that it aims to build about 500 megawatts (MW) of gross data centre capacity by 2030, from the current 42 MW it currently owns.

The move would mirror Singtel’s move to sell a 20 per cent stake in its data centre business to private equity firm KKR for S$1.1 billion, which was announced in September 2023.

Furthermore, the company could spin off its fibre assets over the next two years, the analysts said.

Support for moves

These moves may also be encouraged by the Indonesian government as it places key state-owned enterprise assets, such as Telkom, into independently managed sovereign wealth fund Danantara, which can deliver higher returns.

“Danantara may place a greater emphasis on capital optimisation and investment dividend given the need to upstream cash to the national government,” the analysts said.

In the Philippines, the analysts said that Globe may pare down its stake in fintech startup Mynt, which operates the e-wallet brand GCash. After a further round of funding in August 2024, the startup has been valued at US$5 billion, of which Globe has around a 35 per cent stake.

“Mynt is now consistently profitable and ready for listing should the market opportunity arise,” the analysts said. They added that although Globe could reap investment windfalls from an initial public offering, it has also indicated that it prefers to retain a significant stake in the startup.

In Singapore, Singtel’s management announced in May 2024 that it aims to sell S$6 billion in assets over the medium term under its Singtel28 growth plan.

The analysts noted that the company could dilute its stake in Indian associate Bharti Airtel as well as its wholly owned Australian subsidiary Optus. Sales of non-strategic stakes in Thai associate Intouch, its Grab digital bank joint venture, Singpost and Netlink Trust may also be possible, they said.

They added that some of the proceeds will likely be redeployed for longer-term growth investments, but Singtel could return surplus cash to shareholders as additional dividends or even share buybacks, as its other local large cap peers have done.