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COMMUNICATIONS, TECHNOLOGY & TRANSPORT
Shrinking margins take toll Super-competitive sector could still reward investors who can identify companies that can squeeze profit out of new technologies and applications By SRISAMORN PHOOSUPHANUSORN A highly saturated market and heavy price competition put high pressure on margins and profits for communications sector operators in 2005.  Even though more intense competition and a further shrinkage in margins is likely this year, some telecom operators have forecast up to 50% revenue growthin 2006, compared with less than 10% in the year before.The communication sector, capitalised at 549 billion baht, had the fourth-best total shareholder return (TSR) over three years at 55.9%. But its one-year TSR was a modest 11.8%, while it returned 24.1% over five years and 5.4% over 10 years.  Amongthe 17 firms inthe
sector, International Engineering
Plc (IEC) led, with a
one-year return of a whopping
525.6%, followed by the
handset distributor Bliss-Tel
(BLISS) at 93.3%.CSLoxInfo
was the poorest performer
with a one-year TSR of
-51.1% on market capitalisation
of 2.25 billion baht.Advanced Info Service (AIS), by far the sector’s largest player at 318.67 billion baht, yielded 6.6% last year, against 53.4%,29.4%and12%over three, five and 10 years respectively. The handset distributor IEC stood out last year as it reaped the benefits of on going overhead cost restructuring and business diversification,from digital content to enterprise solutions and new investment in the electricity business. IEC expects its revenue toalmost double to 10 billion baht in 2006 from 5.2 billion in 2005,based on growing demand in digital content and application and mobile handsets. Handset sales are expected to account for 70% of total revenue this year, compared with 96% last year. The rest came from digital content as well as enterprise resource planning and IT businesses.
‘‘We expect to see a profit this year, fuelled by the reduction of overhead costs including logistics and distribution expenses and the improvement in efficiency and productivity of operating processes,’’ he said. IEC expects to sell 1.1 million handsets this year, up from 700,000 units last year, helped by its strong distribution coverage of 70% in the local market. The company plans to invest 60-70 million baht in expanding its outlet network nationwide this year, from an expected 350 shops at the end of this year. MrBee said IEC was looking to diversify its revenue sources and business operations through new investments in the electricity sector, starting this year. ‘‘The move is part of our strategic policy of diversifying into new highpotential technology-related businesses to expand business portfolio,’’ he said. ‘‘We expect the proportion ofhandsets business to decrease to 50% over the next three years,’’ he added. Bliss-Tel, which posted the secondhighest one-year return at 93.3%, had a net profit of 114.8 million baht in 2005, down11.5% from the year before, though revenue was up 8% to 9.9 billion baht. Managing director Attavit Ektanitphong said Bliss-Tel projected revenue would increase to 15 billion baht in 2006, with sales of handsets topping 1.6 million units, fuelled by the growing popularity of the Samsung brand. ‘‘We expect to see an improvement in our margin this year from the current 7-8%, helped by lower inventory costs as well as the increase in the proportion of its retail sales and a drop in the cost of goods,’’ he said. AIS (ADVANC), which had the eighth highest one-year return at6.6%—against 53.4% over three years and 29.4% over five — has estimated three million to four million new mobile customers this year, after obtaining three million in 2005. Grassroots customers in remote areas are expected to be the key driver boosting new sales in the prepaid segment. Third-generation (3G) and voice-over- Internet protocol applications are seen as the industry’s highlight products and services, thanks to growing demand for always-onwireless multimedia communications and changing lifestyles. AIS expects a drop in revenue this year due to subscriber defections linked to the threatened boycott of companies linked to its parent, Shin Corp, over the latter’s sale to Singaporean interests. For the poorest-performing company in the sector, CS LoxInfo, the company has seen the number of its dial-up customers declining rapidly, largely due to the shift to broadband services that have become widely affordable and are being heavily promoted by many providers. The company currently has 1,500 leased-line Internet customers,generating 50% of total revenue. Its 298,000 dial-up customers represented 32% of revenue and 11,800 broadband users 18%. Though CS LoxInfo has shifted its focus to lucrative broadband market, the company’s service charges and varieties of services have failed to compete with the offers by True Corp, which has integrated services from fixed-line telephone, mobile phone and broadband. However,mostanalysts are optimistic about telecoms, saying the hyper-competitive sector is an attractive choice for investment funds as it has long-term potential and sustainable growth. ‘‘Even a decline in earnings growth would continue to weaken in 2006 because of greater intense competition, Thailand’s telecom industry has grown by an average of 15% a year over two decades,’’ one analyst said.
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