webe costs seen weighing on Telekom Malaysia

Incumbent fixed operator, Telekom Malaysia Bhd's entry into 4G market may put more pressure on mobile phone operators.

PETALING JAYA: While posting results for the financial year ended Dec 31, 2016 (FY16) that were largely within market expectations, Telekom Malaysia Bhd’s (TM) financial performance for this year may be weighed by continued costs stemming from the company’s digital mobility services provider, webe.

Analysts said the company expects flat earnings before tax, interest, depreciation and amortisation (Ebitda) for FY17 due to increased marketing and operating expenditure relating to the full year operation of webe, as well as higher customer project costs.

For FY17, the company expects a 3.5% to 4% growth in revenue after enjoying record high revenue of RM12bil in FY16 and an RM847.9mil core net profit.

“Ebitda margin was largely flat year on year at 30.4% inthe fourth quarter, we project margin to ease 0.6% year on year (y-o-y) to 31.1% in FY17,” CIMB stated.

“webe now has over 2,000 LTE sites providing 61% population coverage; it targets to increase coverage to 70% by the end of FY17.

TM indicated that 2% of its households now subscribe to webe, and it expects this figure to increase to 8% to10% in FY17,” CIMB added.

Furthermore, TM’s Internet and multimedia revenue sustained healthy growth of 10.3% y-o-y while quarter on quarter (q-o-q), UniFi installations were slightly higher at 28,000, up from 21,000 in the third quarter as installations picked up after Ramadan.

“UniFi average revenue per unit (ARPU) grew 2% q-o-q (+6% y-o-y) to a new high of RM201 in the fourth quarter on upselling initiatives, with 79% of subs on 10Mbps and above (Q316: 75%) and higher subscription to premium TV channels.

Streamyx users fell a further 1.9% q-o-q (net loss: 27,000) due to migration to UniFi, while ARPU grew a stronger 2% q-o-q (+3% y-o-y) to RM92,” CIMB stated.

Analysts said the free UniFi speed upgrades in 2017 will not negatively hit TM’s FY17 to FY18F revenue, although they would limit an ARPU increase.

“Hence, we forecast FY17F/18F core earnings per share (EPS) growth of 3.6%/8.2% based on revenue growth of 3.3%/4.2%, driven by fixed broadband and managed accounts businesses and lower webe losses from impairment.

“For FY19, we forecast core EPS to fall 5.6% as we have factored in an effective 20% UniFi Home price cut,” CIMB said.

CIMB maintained their hold rating of Telekom with a target price of RM6.10 with Hong Leong Investment Bank (HLIB) also following suit with a “hold” rating but with a target price of RM5.93.

Telekom closed three sen lower at RM6.11.

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