Concerns over TM revenue growth in 2020

PETALING JAYA: The contraction in Telekom Malaysia Bhd’s (TM) unifi business is expected to persist due to the impact of the mandatory standard on access pricing (MSAP), which made service providers offer faster yet cheaper broadband plans.

MIDF Research said its main concern resided with the group’s ability to grow its revenue, especially its unifi business.

It said the current MSAP would be effective until Dec 31 and it did not discount the possibility that it could remain unfavourable to the group.

The research house also expected a strain on the group’s cash position due to expectancy of higher capital expenditure spending to uphold its intention as the sole national infrastructure provider for 5G.

It downgraded its recommendation on Telekom to “sell” from “neutral” with a target price of RM3.15.

MIDF, however, commended the group’s cost rationalisation programme, which improved its performance for financial year 2019 (FY19).

“While we acknowledge there is still room to push cost down further, we view that the quantum of annual cost savings could notably reduce, ” it said.

TM recorded losses of RM51.09mil for the fourth quarter ended Dec 31,2019 while its revenue declined 1.77% year-on-year (y-o-y) to RM3.03bil.

This was on the back of declines in voice, Internet and multimedia services and other telecommunication-related service revenues.

Revenue from unifi itself dropped 12.6% to RM1.12bil for the quarter, partly from the impact of the Streamyx price adjustment, which took effect in September last year, and the Year End Promotion (Pay Nothing) campaign.

On a full-year basis, Telekom recorded a 313% jump in net profit from RM153.15mil to RM632.68mil while its revenue dropped 3.26% to RM11.43bil.

UOBKayHian Research also said that revenue growth would remain challenging into the year and that meeting the National Fiberisation and Connectivity Plan targets would imply a further average revenue per user (ARPU) dilution. It reiterated a “hold” with a target price of RM3.68.

Maybank IB Research said there remained no visibility on whether TM would be a part of the 5G infrastructure consortium.

It added that although the management guided for revenue to decline by low to mid-single digit and an earnings before interest and tax of RM1bil for FY20, the guidance was obviously loose although the group is optimistic of delivering further cost optimisation.

It has lowered its FY20 and FY21 net profit forecasts by 2% and 4%, respectively.

Maybank IB has maintained its “hold” rating with a lower target price of RM3.80.

JF Apex Securities Research maintained a “hold” rating on TM with a target price of RM4 as it expects earnings growth to continue to be supported by the ongoing cost optimisation amid challenges on the topside and the capital expenditure in 5G.

It said potential catalysts could come from TM’s sale of non-core assets such as VADS Bhd and its office.

Kenanga Research, on the other hand, believed that the group would continue to see growth in unifi from a wider national connectivity.

It pointed out that the ARPU could be threatened by ongoing adjustments and agendas to provide affordable packages to the public.

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