PETALING JAYA: Telekom Malaysia Bhd (TM) does not expect substantive capital expenditure increases to expand its submarine capacity that will be needed to support its wholesale indefeasible rights of use (IRU) to other telco operators
An IRU is a type of telecommunications lease agreement that cannot be undone between the owners of a communications system and a customer of that system.
AmInvestment Bank said in a report yesterday that this was due to the fact that the group would be leveraging its national infrastructure to secure reciprocal arrangements with undersea fibre owners and partners for connectivity in Malaysia and the region.
“Hence, management is optimistic that the sale of IRU could be seasonally higher in TM’s fourth-quarter 2020 results. As a comparison, fourth-quarter 2019 accounted for 27% of the 2019 revenue.”
AmInvestment Bank said TM’s nine-month 2020 normalised earnings already accounted for 80% of 2020 consensus earnings, which is currently 3% below the research house’s forecast. “As such, we believe that TM’s 2020 earnings could come in above market expectations.”
AmInvestment Bank said TM Wholesale, the domestic and international wholesale arm of the group, accounted for 20% of the company’s nine-month 2020 group revenue.
“This segment’s growth is being driven by higher international voice together with domestic and global data, which support a slightly higher nine-month 2020 earnings before interest margin of 17%, compared with the group’s average 15%.”
The research house said the wholesale division is leveraging its fixed play dominance provided by its national fibre-optic network and extensive partnerships, with regional edge computing nodes offering content delivery network gateways for over-the-top providers such as Amazon and Netflix.
“Currently, TM provides connectivity to five nodes in Malaysia, 43 in Asean and 66 globally. Even though data centres are becoming increasingly important on the back of escalating data demand requirements, the group expects to moderate its investments via strategic ecosystem partnerships with third parties by providing the needed connectivity to its extensive national fibre-optic network.”
Meanwhile, TA Securities said TM had seen stability in the final part of last year despite Covid-19 headwinds.
“As such, we remain firm on our forecasts with fourth-quarter 2020 core earnings estimated to come in the range of between RM270mil and RM300mil, compared with third-quarter 2020’s core earnings of RM289mil.”
TA Securities highlighted that TM’s nine-month 2020 revenue declined 6.7% to RM7.84bil, mainly due to lower revenue from voice (on lower customer and traffic minutes) and Internet (on the downward price revision of Streamyx plans).
“However, largely thanks to ongoing cost-optimisation efforts, core net profit only eased 1.7% to RM797mil.
“It is also noteworthy that while revenue was weaker on a year-on-year basis, the increase in demand for connectivity services amid the Covid-19 pandemic had seen the group’s quarterly revenue on a sequential recovery trajectory since the second and third quarters of 2020.”
On a regional level, TA Securities said TM has been focused on expanding its range of products and services, in pursuit of positioning Malaysia as the region’s preferred digital hub.
“This includes content delivery network services which management expects to be an upcoming area of growth. Management also acknowledged that while margin pressure is inevitable for the wholesale segment, the downside is mitigated via the forging of complementing partnerships with regional peers.”