The research house said on Monday TM's FY20F enterprise value/operating freecashflow (EV/OpFCF) of 12 times is at a 25% discount to the Asean telco average, which it deems
justified due to regulatory risks.
“FY19F-21F dividend yields (60% payout) are 3.3%-3.5%. Key upside/downside risks: unifi mobile turns profitable sooner than expected/keener broadband price competition,” it said.
Over the weekend, TM announced plans to reduce the price of its existing eight Mbps Streamyx home broadband plan by 44% to RM89 a month (from RM160 a month currently), while existing users will pay RM69 a month, starting September.
TM will also embark on a new network rollout plan, using fibre, wireless and GigaWire to address the slow speeds of Streamyx.
Starting from last Saturday, TM targets to migrate 70% of Streamyx subs to unifi by end-2020, with all subs to enjoy faster speeds by 2021.
“To implement the network rollout, TM intends to seek the government’s support, potentially using the Universal Services Provision (USP) Fund,” it said.
CGS-CIMB Research said while TM was previously given a month to propose a plan to resolve Streamyx subs’ issues, the price cut still comes as a negative surprise.
“We gather from sources that the price for all existing Streamyx residential subs would be reduced to a maximum of RM69 a month, including the 1/2/3Mbps plans (currently RM110/130/140 per month).
“TM does not disclose the mix of Streamyx subs, but its 1Q19 average revenue per user (ARPU) of RM87 suggests that the majority of subs are on lower-priced plans than those currently offered.
“While it is difficult to estimate the exact impact, the price cut could lower ARPU by at least 21% to RM69, and possibly slightly lower if we take into account lower-ARPU subs,” it said.
TM said Streamyx revenue accounts for 7.6%/6.8%/6.1% of total revenue in FY19/20/21F.
Assuming ARPU drops to RM69, its FY19/20/21F total revenue will be reduced by 0.5% (4-month impact)/1.3%/1.1%.
The negative impact will be a larger 1.5%/4.0%/3.5% for EBITDA and 5.0%/12.6%/11.9% for core EPS, as the price cut will largely flow straight through to its bottomline.
“We currently assume RM1.9bil to RM2bil capex per annum in FY19-21F. There is a risk that TM may incur higher capex in the next 1.5-2.0 years to complete its network rollout, but this may be mitigated if it is given a government grant or allowed to tap on the USP. Slight downside to fair value; share price could take a hit from news.
“If we assume Streamyx ARPU of RM69 and unchanged capex, our current DCF-based fair value would be reduced by 18 sen (-5%). While TM’s share price fell from its recent peak of RM4.65 to last Friday’s close of RM4.20 (-10%), it may still see some selling pressure, as the news should come as a negative surprise to the market,” it said.