For Asia-Pacific’s (APAC) telecommunications sector, competition and scale benefits will drive consolidation in 2022-23 in some emerging markets, while free cash flow will turn positive despite high capital spending as companies rein in shareholder returns, according to Moody’s Investors Service in a new report.
“Revenue for APAC telecommunication companies (telcos) will grow 3.5%-4.0% in 2022 as consolidation will likely ease competition in some emerging markets and developed markets will see early gains from 5G adoption. However, revenue growth will lag average regional GDP growth of 5.0% as the sector matures,” says Nidhi Dhruv, a Moody’s Vice President and Senior Analyst.
Capital spending remains high at around 22%-23% of revenue as telcos accelerate 5G spending. However, most will fund spending largely using internal cash. Emerging market telcos in APAC will lead capital spending at around 30% of revenue in 2022, to enhance existing networks and initial investments in 5G. Meanwhile, developed market telcos’ capital expenditure to revenue will remain stable at around 14% as they benefit from well-established networks.
Despite the high capital spending, APAC telcos’ free cash flow will turn positive as companies reduce shareholder payments.
Refinancing risk is manageable for most APAC telcos, with only 12%-15% of total debt maturing in 2022. Moreover, APAC telcos’ access to bond and bank funding will likely remain strong.
Moody’s outlook for Asia-Pacific’s telecommunication companies reflects its expectations for fundamental business conditions in this sector over the next 12-18 months, and does not reflect its outlook for individual issuers. Moody’s 2022 Outlooks explore the big credit trends and fundamentals shaping sectors and regions in the year ahead.