TM continues to beat expectations but analysts concern over ability to retain growth
KUCHING: Telekom Malaysia Bhd (TM) reported a solid set of results with its first nine months of 2019 (9M19) core net profit increasing 54 per cent year-on-year (y-o-y) to RM811 million, exceeding market’s expectations.
However, analysts are wary about its prospects and ability to retain its revenue growth, despite the group’s cost rationalisation programme.
“We commend the group’s cost rationalisation programme which has significantly improves the group’s profit margin and thus, profitability.
“However, we remain concern on the group’s ability to grow its revenue, especially its unifi business which is the group’s main revenue contributor,” MIDF Amanah Investment Bank Bhd’s research team opined, noting that TM’s broadband average revenue per unit (ARPU) and the customer base continue to dwindle in view of the competitive market landscape.
AmInvestment Bank Bhd’s research team ( AmInvestment) also said, it remained cautious on TM’s prospects from the potential impact of the National Fiberisation and Connectivity Plan (NFCP) which could further halve entry price packages next year while significantly raising the capex levels of fibre infrastructure owners. “As the group has not revealed its capex guidance for FY20F at this juncture, we expect greater clarity on the spending requirements for the NFCP early next year,” it added.
Meanwhile, AmInvestment said TM indicated that capex would be slightly lower than its guidance of 18 per cent to revenue, which could mean 4QFY19 spending could surge to over RM1 billion from just RM286 million in 3QFY19 and RM736 million in 9MFY19.
On TM’s 3Q performance, the research team said, the sale of land at TM Facilities contributed to 40 per cent of the 22 per cent q-o-q surge in 3QFY19 other revenue, which translates to an estimated one-off profit of RM30 million or 10 per cent of 3QFY19 normalised earnings.
“Operating expenditures, which fell 13 per cent y-o-y to RM5.5 billion in 9MFY19, remain on track and management does not expect any backloaded provision in 4QFY19,” it added.
On its prospects, AmInvestment said, as part of its plan to position TM as the wholesale 5G infrastructure provider, the group is aggressively aiming to secure as much of the 700MHz spectrum as possible to provide be er coverage for rural and remote areas.
“Given that the price component of the 700MHz has been set at RM21.6/MHz, the eight blocks of two-folds 5MHz could cost RM1.7 billion – 15 per cent of TM’s FY20F revenue.
“This does not include additional fees for the 3.5GHz spectrum, which has not been priced at this stage yet for 5G usage,” it said.
The research team also pointed out that TM has managed to migrate over 400,000 Streamyx customers to Unifi via fibre and wireless options, which comprise most of the 662K decrease in users over the past three years.
“The cost to upgrade the copper wire-based Streamyx service to Unifi remains part of the group’s FY19F capex guidance.
“Nevertheless, 3QFY19 net broadband subscribers still declined by 3,000 as new Unifi users of 34,000 was more than offset by Streamyx users decline. Increasingly, new rivals are entering the fibre broadband segment with Maxis’ fibre customer accretion (both home and business) of 126,000 edging ahead of Unifi’s 112,000,” it added.
All in, AmInvestment retained a ‘hold’ call on the stock while MIDF Research reiterated its ‘ neutral’ rating on TM.