Fitch Ratings said average leverage for the telecom sector in Malaysia is likely to remain steady, following private-equity placements by largest mobile operator Maxis and regional telecom operator Axiata in 2017 to strengthen their balance sheets.

Telekom Malaysia’s leverage to stay above the industry average in 2018, assuming the fixed-line incumbent accelerates its 10-year high-speed broadband (HSBB2) and sub-urban broadband (SUBB) projects over a five-year period ending 2019.

Mobile operator DiGi remains the least geared among Malaysian-listed telecom operators.

CFFO growth for the sector may stay sluggish, reflecting the tough competition in the domestic mobile sector. TM’s revenue will grow by 3 percent-4 percent yoy, outpacing the negative growth of its mobile peers.

Lower dividend payouts could help alleviate some pressure on cash flows, while FCF will stay negative due to high investment in Capex and mobile spectrum.

The top-three mobile operators – Maxis, Celcom and DiGi – will retain market share in Malaysia. Their focus will increasingly shift towards higher-priced postpaid migration from prepaid plans, amid a highly saturated market.

The impact of TM’s new mobile service Webe has been limited, but may change should new spectrum become available. Market challenger U-Mobile is better placed to raise data allowances – given its enlarged spectrum capacity, which presents a potential downside risk.

The Capex/revenue ratio for the telecom sector in Malaysia will remain high at around 25 percent, driven mainly by TM’s fibre broadband and Axiata’s regional network expansion plans.

In the mobile segment, DiGi and Celcom are looking to close their LTE network overage gap against Maxis, which should keep Capex/revenue at around the mid-teens.

Fitch Ratings said Capex may be higher than its forecast should the 2100MHz and 2600MHz spectrum re-allocation take place between end-2017 and 2018. The telecom regulator is also looking to address the optimal usage of the 700MHz spectrum band.