PublicInvest cuts TM earnings forecast on lower data revenue

The research house also raised its target price on Telekom Malaysia Bhd

KUALA LUMPUR: PublicInvest Research has cut its FY18-20F earnings forecast on Telekom Malaysia Bhd by 9%-14% to account for lower data revenue. 

It downgraded its rating from trading buy to neutral with a reduced target price of RM3.83 from RM4.65 previously. 

TM announced yesterday that its 2QFY18 net profit dropped 51.5% year-on-year to RM102mil.

"Stripping out non-operating items, normalised net profit dropped 25.1% YoY to RM155.8m, mainly due to lower voice revenue while data services were affected by a provision made on estimated impact of regulatory mandated access pricing," noted PublicInvest.

The results for 1H18 came to only 39% and 36% of its and market's full-year estimates respectively.

PublicInvest said 1HFY18 revenue fell 2.7% due to lower revenue from voice, data and other telecommunications-related services. 

Data services was affected by a provision amounting to RM88.4m arising from the estimated impact of the Mandatory Standard on Access Pricing (MSAP), it said.

Concomitantly, 1HFY18 normalised net profit dropped 40.4% YoY mainly on lower revenue and higher effective tax rate (49.5% versus 32.5%) due to losses from its mobile unit for which no corresponding tax losses or deferred tax asset has been recognised.

PublicInvest said with the implementation of MSAP in June, it believes competition in the broadband space will intensify with more players given access to fibre.

"This could potentially threaten TM’s monopoly in providing high speed broadband services nationwide. 

"Also, given the likelihood of Tenaga Nasional opening up its fibre network to other telco providers, we think there is room for further decline in fixed-line broadband prices in
the long run," it said.
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