KUALA LUMPUR: AmInvestment Research has maintained its buy call on Telekom Malaysia Bhd
with unchanged forecasts and a fair value of RM4.90 a share.
The research house said Fitch Ratings has downgraded TM's credit outlook to negative from stable due to EBITDA pressure, continuing high capex/dividend commitments, and the government’s plan to lower fixed broadband prices by 25% by the end of this year.
The telco plans announce details about its initiatives on afforable broadband services at higher speeds within the next quarter to increase its competitiveness.
"One option to mitigate the impact would be to adjust the permutation of price to speed offerings, as TM’s price/speed is much higher compared to Time dotCom’s.
"TM’s lowest unifi monthly package of RM129 for speed of 10Mbps translates to RM12.90/Mbps, 8.7x compared to Time dotCom’s RM1.49/Mbps (RM149 at 100Mbps)."
AmInvestment said that under the worse-case scenario, a 25% reduction in unifi revenue could potentially wipe out almost 90% of TM's FY19F ernings. Coupled with a similar reduction in Streamyx revenue, it would translate into a slight loss for TM.
"Hence, we believe the government will be receptive to a lower price to speed offerings as a drastic revenue cut could derail the group’s capex rollout programme under the High-Speed Broadband 2 drive to connect suburban and rural areas, impeding plans to provide internet access throughout Malaysia," it said.
AmInvestment is of the view that the worsening credit outlook and revenue pressures would eventually lead towards sector consolidation and a potential re-merger with Axiata Group.
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