Tuesday, May 22, 2018

Affin Hwang : SST Reintroduction Could Hurt Telcos

(Straits Times) – The reintroduction of sales and service tax (SST) will create uncertainties in the telecommunications sector’s prepaid segment based on past precedent.

Affin Hwang said while the details on SST are still vague, it could negatively affect the revenue or profits for the telcos’ prepaid business, should the government decide not to provide any tax rebates.

The research house said prior to April 2015, both postpaid and prepaid sales were subjected to a six per cent service tax.

The telcos passed on the SST to their postpaid customers but absorbed the SST for prepaid users.

Upon the introduction of goods and services tax (GST), the telcos decided to pass on both.

DiGi has the highest exposure to Malaysia’s prepaid segment – 59 per cent of its 2017 revenue, followed by Maxis (44 per cent) and Axiata (11 per cent).

Notwithstanding DiGi and Maxis’ high revenue exposure, it expects the direct earnings impact from SST to be manageable, taking into consideration their high profit margins, resilient earnings trend during the 2015 and 2016 period (implementation of GST, introduction of rebates).

And, telcos are expected to benefit indirectly from improvement in consumer sentiment arising from lower GST rate.

“That said, we acknowledge that the situation is still fluid and any impact on earnings will likely be manageable, partly cushioned by improvement in consumer sentiments arising from an absence of GST,” it said.

Affi Hwang has maintained its “neutral” stance on the sector.

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