PETALING JAYA: Telekom Malaysia Bhd (TM) risks losing its customers in the domestic fixed-line broadband scene if Tenaga Nasional Bhd’s (TNB) National Fiberisation and Connectivity Plan (NFCP) pilot project becomes a long-term business arrangement.
Affin Hwang Capital Research, which became the latest brokerage to downgrade TM, has warned that the telecommunications player’s long-built market share could decline due to the possible emergence of new competitors in the broadband market.
Under the three-month NFCP pilot project, several Internet service providers (ISPs) will offer broadband packages to 1,100 customers in Jasin, Malacca by leveraging on TNB’s fibre optics.
TNB will make its final decision whether to enter the fixed-line, high-speed broadband (HSBB) market in the second quarter of this year.
“TNB’s high-speed fibre network should provide an irresistible option for TM’s 1.1 million Streamyx subscribers, given the significant speed upgrades (30Mbps to 50Mbps versus 1Mbps to 8Mbps) and lower subscription prices.
“Elsewhere, the competitive product offerings from Maxis or City Broadband may lure TM’s 1.2 million Unifi subscribers,” stated the research house in a note.
Affin Hwang Capital downgraded TM yesterday as it turned bearish on the government-linked company, a day after TNB rolled out its NFCP pilot project.
The telecommunications player, whose share price was hammered down severely post-14th general election, saw its rating lowered to a “sell” from the earlier “hold” call.
According to Bloomberg, nine brokerages have recommended a “sell” on TM, while 14 others have issued a “hold” call. Five research houses have recommended a “buy” call on the stock.
While Affin Hwang Capital has left its target price unchanged at RM2.30, it was at a discount of 11.5% to TM’s closing price of RM2.65 yesterday.
Affin Hwang Capital said that its downgrade on TM was also due to “higher downside risks to its share price”.
“At 20 times the price-to-earnings ratio for financial year 2019, TM’s valuation looks pricey, considering the challenging business environment, likely contraction in 2019 core earnings and its heavy balance sheet,” it said.
In a separate note, PublicInvest Research described the rollout of HSBB packages by the ISPs under the NFCP pilot project as “negative” to TM.
At the moment, the research house expects the impact from the NFCP pilot project to be immaterial to the participating ISPs.
The research house also said that it is still uncertain whether TNB would be capable of rolling out HSBB in untapped areas that have yet to be connected with the existing fibre network.
“Overall, we believe this could bring potential revenue growth to TNB through rental of the fibre infrastructure, but the earnings impact is expected to be insignificant to the group. City Broadband, which is TNB’s wholly owned subsidiary, is among the broadband players participating in the pilot project.
“For TNB to compete directly against existing broadband players in a meaningful manner, we believe significant investment is required for last-mile connectivity,” it said. PublicInvest Research has maintained its “underweight” call on the telecommuncations sector.