TM may bear up to half of NFCP's RM21.6b cost — AmInvestment

TheEdge Fri, Sep 20, 2019 05:27pm - 4 years View Original


KUALA LUMPUR (Sept 20): Telekom Malaysia Bhd (TM) may bear up to half of Malaysia's National Fiberisation and Connectivity Plan's (NFCP) estimated cost of RM21.6 billion due to TM's role as Malaysia's national broadband provider, acccording to AmInvestment Bank Bhd.

AmInvestment analyst Alex Goh wrote in a note today that besides TM's own capital expenditure (capex) requirements, the NFCP roll-out alone translates to 19% of TM's forecasted revenue for financial year ending Dec 31, 2020 (FY20). Goh said the 19% is above TM's FY19 capex target at 18% of revenue.

"Additionally, the thrust of the NFCP towards connecting the rural population could mean that revenue accretion from these investments will be minimal. The earnings impact to TM will snowball as its capex mounts up to 2025, as higher borrowing costs and depreciation charges will gradually erode the group’s earnings.

"Doubling TM’s annual capex of RM2b currently will slightly cut its net profit by 3% in FY20F but gradually worsen by 10% in FY21F, 19% in FY22F, 30% in FY23F, 48% in FY24F and 49% in FY25F, under a worst case scenario. Nevertheless, we highlight that part of the NFCP spending may already be included in TM’s existing capex programme," Goh said.

According to him, these costs however exclude additional 5G spectrum fees and roll-out capex. 5G spectrum allocation has not been decided at this stage as it depends on the results of trials, state of the ecosystem, besides device and equipment availability, he said.

“While the MCMC (Malaysian Communications and Multimedia Commission) alluded to a fair price for the spectrum to facilitate the roll-out of this vastly faster service, we expect these additional fees and capex, which could be up to 10 times of 4G spending levels, to further raise the gearing levels of mobile operators.

"Maintain NEUTRAL outlook on the sector, given the escalating NFCP-driven capex requirements against the backdrop of government-targeted fiberized ARPU (average revenue per user) reductions," Goh said.

Besides TM, Malaysia's telecommunication sector includes Axiata Group Bhd, Digi.Com Bhd, Maxis Bhd and TIME dotCom Bhd.

Goh said that based on the NFCP's planned entry-level fixed broadband packages at 1% of the nation's gross national income, the government may be looking at further broadband price cuts next year, which will negatively impact the ARPU trajectory of broadband network owners such as TM and TIME dotCom.

"However, the margin impact may be largely mitigated for third-party operators like Maxis, Axiata’s Celcom and Digi, which may be leasing TM’s fibre network at correspondingly lower rates," he said.

See also:
Wan Azizah: USP fund to reduce investment cost of RM21.6b NFCP

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