KUALA LUMPUR: With the net additions of the Unifi subscribers falling during the Movement Control Order from the closure of Telekom Malaysia One kiosks, there may be lower pressure on Unifi’s average revenue per user (ARPU) with minimal discounts offered.
However, AmBank Research said there is an exception on a case-by-case basis for some small and medium enterprises (SMEs) which include bill payment deferrals.
“Although no discounts are being offered to the retail segment, free content such as video-on-demand is being offered currently.
“However, Streamyx ARPU, which fell RM15 per month to RM96 per month in the fourth quarter ended Dec 31 (4QFY19) is expected to drop further due to the full-year repricing impact from last year, ” it added.
Following AmBank Research’s teleconference with Telekom Malaysia Bhd (TM) recently, the management indicated that authorities have not pressured broadband operators to cut rates this year during the Movement Control Order (MCO).
This is in comparison with the National Fiberisation and Connectivity Plan, which aimed to reduce entry-level packages to 1% of gross national income (GNI), implying around RM40 per month.
Given the moderating pressure on fixed broadband rates, AmBank Research is maintaining a “hold” call on TM, with a higher discounted cash flow (DCF)-based fair value of RM4.15. This is based on a weighed average cost of capital (WACC) of 7.4% and higher terminal growth rate of 2% from 1%.
As such, AmBank Research has raised TM’s earnings by 2% between financial year ending Dec 31 (FY20) forecast and FY22 forecast on the back of lower operating cost assumptions.
The research house noted that TM’s operational costs are expected to improve following the 16% year-on-year drop to RM10bil in FY19 due to the group’s performance improvement programme.
In June last year, Datuk Noor Kamarul, was appointed as chief executive officer to realign TM’s priorities by focusing on higher income yielding sites for broadband expansion and introducing more competitive products.
Moreover, TM’s earnings before interest and tax is expected to be around RM1.4bil in FY20 forecast compared to RM1.6bil in FY19 due to higher capital expenditure (capex) rollouts in line with the group’s network improvement efforts.
Meanwhile, AmBank Research noted that TM’s capex guidance of low-to-mid 20%, may be revised in the second quarter ending June 30,2020 (2Q20) due to MCO prerogatives.
“While management indicated that MCO may slow down the projected FY20 forecast capex of RM2.8bil, the guidance of low-to-mid 20% of capex or revenue is maintained as rollouts could be ramped up after the MCO, ” it said.
With the higher capex needs and weak near-term earnings outlook, AmBank Research said the stock is trading at a fair earnings valuation of five times with a decent dividend yield of 3% for FY20 forecast.
As of today, TM has forked out RM10mil out of the RM400mil earmarked for the Covid-19 economic stimulus package to improve its network quality.
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