PETALING JAYA: Increasing product convergence propositions, such as internet protocol television (IPTV), over-the-top (OTT) applications and mobile service provider webe could translate into greater earnings and subscriber quality for Telekom Malaysia Bhd (TM) over the long run, said RHB Research.
In addition, the research house expects near-term earnings growth to continue to be powered by data demand, such as broadband rollouts of High Speed Broadband 2 (HSBB2) and Sub Urban Broadband (SUBB), greater demand for higher speeds as well as greater bandwidth sales.
“HSBB2 and SUBB are expected to contribute earnings to TM up to 2017 and 2019, respectively.
“Overall, both HSBB2 and SUBB will add some 460,000 broadband ports, expanding UniFi’s footprint and help sustain the growth momentum of its broadband service,” said RHB Research.
TM had an additional 82,000 UniFi customers in the first nine months of financial year 2016, led by higher take up as well as upselling from Streamyx.
Apart from that, TM stands to gain from the RM1bil earmarked by the Government to improve broadband coverage and quality, as part of Budget 2017.
RHB Research said that broadband prices will be cut by 50% in two years, which would be met by TM via progressive declines in unit pricing from higher speeds offering.
According to TM, some 500,000 or 55% of the 921,000 UniFi subscribers as at the third quarter are to be progressively upgraded to higher speed plans from 2017, subject to technical availability.
The management also highlighted that the cost of the upgrade exercise would be negligible, with no change in its mid-term key performance indexes and capital expenditure.
“Overall, TM expects the upgrade to be earnings neutral as customer retention and churn will improve with the better value propositions provided.
“In our view, further upside could come from customers up-trading to higher speed plans, a larger proportion of Streamyx subscribers moving to fibre broadband, as well as higher adoption from virgin broadband users.
“Virgin broadband users consist of the 2 million fixed line customers who have yet to subscribe to a broadband service,” said RHB Research.
According to Hong Leong Investment Bank (HLIB) Research, TM’s below-expectations core net profit of RM578mil for the first nine months of financial year 2016 was due to higher-than-expected cost stemming from marketing as well as supplies and materials costs.
TM’s overall revenue fell by 4%, impacted by the dismay showing by all other products, quarter-on-quarter.
However, smaller accelerated depreciation associated to webe and leaner cost structure lifted core net profit by 24%.
Year-on-year, TM’s top line growth was flattish as growth in internet and other revenues were offset by declines from voice and data.
Core earnings fell by 9%, impacted by larger cost base and accelerated depreciation from webe.
Year-to-date, TM’s revenue expanded 3%, attributed to higher contributions from all products which was more than sufficient to offset the fall in voice-related revenue.
“As migration to long term evolution (LTE) gained pace, core net profit actually fell by 11%, as a result of accelerated depreciation associated to webe,” said HLIB Research.