Telekom Malaysia ends over 4% lower after MCMC’s access price cuts

TheEdge Mon, Feb 20, 2023 10:53am - 1 year View Original


KUALA LUMPUR (Feb 20): Shares in Telekom Malaysia Bhd (TM) closed over 4% lower on Monday (Feb 20), after the Malaysian Communications and Multimedia Commission (MCMC) lowered mandatory high-speed broadband access prices.

The telecommunications (telco) giant’s shares, which emerged among Bursa Malaysia’s top losers during early morning trade on Monday following a 6% fall to an intraday low of RM4.86, later pared losses to end at RM4.95, still down 22 sen or 4.26%.

At RM4.95, the group had a market capitalisation of RM18.92 billion.

Last Thursday (Feb 16), the MCMC issued its determination on Mandatory Standard on Access Pricing (MSAP), which saw cuts to layer three high-speed broadband network service gateway costs, but raised installation costs and retained termination unit port charges. 

The new access prices come into effect on March 1 and are valid until Dec 31, 2025.

In a note on Monday (Feb 20), CGS-CIMB analysts Foong Choong Chen and Sherman Lam Hsien Jin said the MSAP cut TM‘s layer three high-speed broadband (HSBB) network 2023-25 service gateway cost by 51% to 65%.

“However, [the MCMC] has decided to retain the termination unit port charges at RM45 per month and raised the installation cost by 13% to 19%,” the pair said.

Based on the rates, Foong and Lam estimate wholesale cost for a new 100Mbps plan to be between RM87 to RM93 per month — a 20% to 25% cut versus current levels, but not as drastic as the 35% to 41% cut initially proposed by the MCMC.

“Assuming further 20% cost on top of the wholesale cost and a 10% profit margin, retail service providers (RSPs) could price a 100Mbps plan at RM115 to RM123 per month or 5% to 11% cheaper versus TM‘s current RM129 per month,” they added.

The CGS-CIMB analysts noted that if RSPs only aim to break even, they may be able to price 100Mbps plans at RM105 to RM111 per month — 14% to 19% cheaper than TM‘s current price point.

RHB Research analyst Jeffrey Tan sees a potential renewal in retail price competition by HSBB access seekers that could pressure TM‘s fibre broadband service (FBB) Unifi — which contributed around 36% of the group's overall revenue in the nine months ended Sept 30, 2022 (9MFY2022).

After moderating the research house’s forecast on Unifi’s average revenue per user and wholesale assumption by 5% to 10%, the RHB analyst lowered his forecast for TM‘s FY2023-24 core earnings by 8% to 20%.

“The mitigating factors are: i) continued robust wholesale growth (around 28% of revenue) with TM benefitting from the expanding fibre footprint under Jendela (more than seven million premises currently), ii) 5G backhaul fiberisation, and iii) strong international data demand,” Tan said.

He continued that the impact on Unifi revenue may be buffered by the already competitive FBB offerings in the market, with a higher proportion of subscribers upgrading to higher-speed plans.

Tan maintained his “buy” rating on the stock with a lower target price (TP) of RM5.90, from RM7.55 previously. 

Meanwhile, CGS-CIMB’s Foong and Lam reiterated their “overweight” call on the telco sector, maintaining their “hold” ratings on Digi.Com Bhd (TP: RM4.15) and Maxis Bhd (TP: RM3.85).

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