FBM KLCI drops below 1,700
TM falls to new multi-year low on proposed lower broadband prices
PETALING JAYA: The FBM KLCI broke below the psychologically important 1,700-point mark yesterday after uncertainties from the US-China trade war continued to dominate headlines.
The benchmark index fell 17.43 points or 1.02% by the end of the day to close at 1,692.32 points.
The fallout from the brewing US-China trade war continued to keep investors at bay and sellers overwhelmed buyers on the local bourse.
The broader market also saw declines and was negatively biased although a sizeable number of counters remained unchanged.
The end of yesterday’s trading day saw 748 counters falling, 199 gaining while 357 counters remained unchanged and 614 counters were untraded.
Volume was at 2.12 billion shares worth some RM2.68bil.
Other Asian markets were more or less negative, with only Japan’s Nikkei adding 0.61% to 22693.04 and Australia’s ASX 200 gaining 0.96% to 6232.10.
US Dow Jones’ futures pointed to a negative opening at press time but US markets mostly closed mixed the day before yesterday.
Dealers said traders do not like uncertainties and that volatility may also have been exacerbated by short sellers who are now able do short selling on the local market.
“The benchmark FBM KLCI index had also been affected following the Government’s directive to lower broadband fees by some 25% by the end of the year.
“Analysts are thinking that Telekom Malaysia (TM) and other telcos could be on the losing end. But no one really knows how this will actually pan out yet,” a dealer said.
On Wednesday, Communications and Multimedia Minister Gobind Singh Deo said broadband prices could be lowered after the implementation of the Mandatory Standard on Access Pricing that was enforced from June 8.
Kenanga Research said in its report that TM is set to be on the losing end.
“Should the wholesale access pricing and the broadband retail price be cut by 25%, TM’s turnover is expected to be reduced by 3.5%13.7% in financial year 2018 (FY18)FY19.
“Assuming a similar net profit margin of 5.7%-6.3%, its FY18-FY19 forecast net profit will be lowered to RM645mil-RM655mil (or -4.0%/13.4%), respectively,” the research house said.
It lowered its discounted cashflow-driven target price to RM3.70 from RM4.35 previously.
TM fell to a new multi-year low of RM3.14 at its close, which is a level not seen since 2011.
Meanwhile, Affin Hwang Capital Research said while it was surprised by the swift execution of the decision to cut broadband prices, it believed that in the long run, the group has tools to cushion the blow.
“TM’s share price has fallen by 26% month-on-month due to concerns over a price cut.
“At 25 times 2019 forecast priceto-earnings ratio and 5% 2019 dividend yield (after 25% broadband price cut), valuations look fair,” it said.