KUALA LUMPUR: There is concern over the negative impact on the telco sector should prepaid users once again have to foot a tax in the event the Goods and Services Tax (GST) is reintroduced in 2023.

       RHB Research said in a note that the reintroduction of the GST would further compound the weakness in the prepaid market as subscribers are likely to reduce their usage.

       "Assuming a 3% reduction in usage, we see the core Ebitda of the mobile telcos falling 0.5-2.4% in FY23F.

       "In a worst-case scenario of the telcos being made to absorb the GST (assumed at 6%), their FY23F core EBITDA would decline by 0.9-4.5%," it said.

       Among the telcos, RHB expects Digi.Com to be the most impacted by the reintroduction of the GST, followed by Maxis and Axiata.

       "Consequently, our TPs on Digi, Maxis and Axiata are likely to be lowered by 4-5% (base case) and 11-14% in a worst-case scenario," it added.

       Among its considerations, the research firm said the pandemic has compounded the pressures of data-led price competition and caused the prepaid market to shrink.

       Meanwhile, communications services are now recognised as a public utility following changes made to the regulatory framework and state by-laws

       "Seen in this light, the re-imposition of GST on prepaid may be perceived as counter-intuitive and a politically sensitive issue, especially when the welfare of the Rakyat remains a top priority," it said.

       RHB has a "neutral" rating on the telco sector, but continues to favour the fixed line/integrated plays Telekom Malaysia and OCK. Axiata is its preferred mobile pick.