Despite being hit by the coronavirus outbreak, plus economic woes on the horizon, mobile businesses are expected to manage well in comparison with other business sectors because of healthy demand for their services and their resilience in an economic downturn.
Kasikorn Securities (KS) predicts an average revenue drop of 15% in 2020 for major mobile operators, with net profits falling 4-5%.
"All the telecoms should still be able to survive if the economy faces a severe downturn over the next 18-24 months," said KS senior analyst Pisut Ngamvijitvong.
During the crisis, some of their services would be affected, particularly international roaming business, which generally contributes around 4% of their total revenues, he said.
The enforcement of the emergency decree and request for social distancing would also mean their service shops have to shut, reducing sales of mobile devices and SIM cards.
However, as state and private organisations are gearing up to work from home to curb the spread of the Covid-19 contagion, telecom operators should see their normally tough tasks of ensuring network capacity in key business locations ease up, said Mr Pisut.
Additionally, the churn rate of mobile users is likely to decline, he said.
According to Mr Pisut, mobile operators' first-quarter performance in 2020 is expected to fare better than the same period a year earlier, or even the last quarter of 2019.
In the final quarter of 2019, operators spent substantial funds on marketing activities and the 5G testbed, hoping to thrive in line with economic growth this year.
However, since early this year, operators have had to slash their spending on all operations as the situation changed in the wake of the outbreak.
LIMITED DEMAND IMPACT
Despite the economic downturn, Mr Pisut believes mobile operators will be resilient, with demand for their services experiencing a limited impact from the pandemic.
Shareholders of telecom operators will still enjoy a decent dividend yield, he said.
According to KS, the severity of the Covid-19 outbreak has surpassed earlier expectations and the pandemic has taken a toll on all economic activities in the country.
The government and private sectors have adopted social distancing and work from home measures.
The stock market is pinning its hopes on the effectiveness of social distancing measures and the emergence of anti-virus medicines and vaccines to tackle the crisis, Mr Pisut said.
However, it appears inevitable the rising death toll and increase in infections will drag down market sentiment in the foreseeable future, he said.
NO LIQUIDITY CRUNCH
Despite such unfavourable sentiment, Mr Pisut said KS's stress test analysis shows telecoms are far from having a liquidity problem, even in the most downbeat scenario.
"The sector's earnings and share prices look relatively resilient to a technical economic recession," he said.
Liquidity is a prime factor, said Mr Pisut, noting that without progress in the production of medicines or vaccines against the coronavirus, the economy is likely to head towards recession.
He said if this unfavourable situation continues, credit lines extended to corporations and households would decline rapidly.
"With the heightened borrowing cost and lack of credit lines, many large companies will face liquidity problems unless something is done to avoid this," said Mr Pisut.
