The merger between Telenor (Parent company of Digi) and Axiata Group (Parent Company of Celcom) may be in jeopardy.
Since the popularisation of free communication apps like Whatsapp, Wechat or Messenger, the mobile telco operators have been facing a hard time, struggling to maintain their growth. The overcrowded telco scene had also caused an intense price war which made them even harder to reap back their investment in 4G infrastructure, not to mention the burden to roll out the future 5G Investment. Facing all these headwinds, a merger between the operators is imminent.
In the chart below, we can see that the regional players have 5 years average ROE of 15.1% but delivering growth of ONLY 0.29% over the past 5 years. Telco counters, which was once the darling of most investors for its stable growth, generous dividend and relatively defensive nature may be facing an inflexion point and a merger (Either merge horizontally with their competitors or merge vertically with content provider) is the only pathway to move on. The recent corporate action in this industry, such as the merger between Telenor and Axiata or the collaboration between Astro Satelite TV and Maxis further confirm this pathway.
