Telekom falls to 2011 low on broadband price cut plan

According to AmBank Research, competition in the local cellular telco segment is expected to remain intense over the medium term, as repackaged data plans make their way to the market while the fixed broadband segment is expected to see rising pressure to improve price and speed.

KUALA LUMPUR: Shares of Telekom Malaysia fell to a multi-year low of RM3.20 after the new federal government announced plans to cut broadband prices by 25% by year-end.

At 10am, Telekom was down 35 sen to RM3.28 and it was actively traded with 21.86 million shares done. This was the lowest since late 2011.

The decline in Telekom also weighed on the FBM KLCI, which fell 2.41 points or 0.14% to 1,707.34. Turnover was 462.87 million shares valued at RM318.54mil. There were 195 gainers, 273 losers and 270 counters unchanged.

Affin Hwang Capital Research reiterated its Hold rating with a lower discounted cashflow- derived price target of RM3.50 after cutting 2018-20E earnings forecasts by 12%-29%, incorporating a 25% drop in broadband prices, partly cushioned by lower operating / staff costs. 

“We are surprised at the swift execution and magnitude of the proposed broadband price cut – it should hit Telekom’s short term earnings; in the long-run, we believe the group has tools to cushion the blow. 

“Telekom's share price has fallen by 26% on-month due to concerns over a price cut. At 25 times 2019E price-to-earnings ratio and 5% 2019 dividend yield (after 25% broadband price cut), valuations look fair,” it said.