Regulatory, competitive pressures impact TM
KOTA KINABALU: Regulatory and competitive pressures have negatively impacted Telekom Malaysia Bhd’s (TM) outlook, with some analysts believing that these pressure will persist in the immediate term.
According to Affin Hwang Investment Bank Bhd (Affin Hwang), given the twin headwinds of increasing regulatory and competitive pressures, TM’s operating outlook remains challenging.
“While we like TM’s cost rationalisation initiatives, the implementation will likely be gradual and we do not expect a significant reduction in operating cost in 2018-20E.
“A likely revision in the dividend policy and consensus earnings downgrades may weaken TM’s share price,” Affin Hwang said.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) also observed that the increasing regulatory and competitive pressures have negatively impacted all the group’s business segments.
“We foresee these pressures to persist in the immediate term,” MIDF Research said.
MIDF Research’s main concern lies with unifi, the group’s largest revenue contributor.
The research arm viewed that the availability of unifi 30 megabits per second (Mbps) basic plan to all segments of the market could lead to TM’s unifi customers downgrading their respective broadband packages should the monthly usage does not exceed 60 gigabytes (GB).
“This would put downward pressure on unifi average revenue per user (ARPU). Note that the unifi 30MBps basic plan is available at RM79 per month while unifi lite plan 10Mbps starts from RM129 per month.”
Additionally, MIDF Research is concerned on TM’s ability to manage the group’s operating expenses efficiently.
“Its total cost as a percentage of revenue has increase steadily beyond 90 per cent.”
Due to the earnings pressure and TM’s capital expenditure (capex) commitment for long-term growth, MIDF Research expected the group’s dividend payment to decline as well.
At this juncture, the research arm viewed that dividend yield to hover around three per cent only.
“All factors considered, we are downgrading our call recommendation to ‘sell’ from ‘neutral’ previously,” it said.
Similarly, Affin Hwang downgraded TM to ‘sell’ from its previous ‘buy’ rating.
While we like TM’s cost rationalisation initiatives, the implementation will likely be gradual and we do not expect a significant reduction in operating cost in 2018-20E. Affin Hwang Investment Bank Bhd