KUALA LUMPUR, Jan 13 — The telecommunications sector will continue to expand strongly this year, driven by insatiable data demand on the back of resiliency of domestic consumerism, says Hong Leong Investment Bank (HLIB).

The research house expects the country’s smartphone penetration to reach 44.5 per cent by end-2014 as the average selling price plummet and continue to drive data revenue.

It also said newer smartphone models also stimulate higher data usage.          

“The proliferation of smartphones bodes well for the telcos who are betting on data revenue to sustain organic growth on the back of voice to data substitution trend in subscriber usage behaviour,” the research firm said in a note today.

Apart from the migration from feature phones to smartphones, the upgrade path from low-end to high-end smartphones also emerges as a transition that is driving data consumption, HLIB said.

Last year, smartphone adoption and penetration rates continue to climb, led by Maxis with 53 per cent, followed by DiGi and Celcom with 34 per cent and 28 per cent, respectively.

“This is due to more affordable smart devices in the market, further enticed by government’s RM200 smartphone incentive benefiting 1.5 million youths.

HLIB said the expectation of the overnight policy rate hike of 25bps in the second half of this year would exert pressure on share price while foreign exchange volatility would send telcos with US dollar debt exposures into doldrums.

The research firm noted that telecommunication companies are expected to stay invested in IT besides 4G mainly to beef up their charging and or billing mechanisms as well as business intelligence.

In cost management, the continuous technological advancement has empowered telcos to manage their cost structure more prudently, it said, adding that network consolidation and outsourcing by telcos are the key mover towards a more sustainable business model.

All in, due to the lack of rerating catalysts that could significantly boost earnings as well as the rich valuation of Malaysian telco stocks, HLIB reiterated its “neutral” rating for the sector.

“However, we do not deny that telcos enjoy stable recurring revenues, strongly supported by resilient domestic demand and are largely seen to be recession-proof.

“Thus, the high dividend yield characteristic will continue to lure investors especially in this highly volatile market,” it added. — Bernama