Friday 29 Mar 2024
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KUALA LUMPUR (May 23): Telekom Malaysia Bhd (TM) shares plunged to a five-year low of RM4.06 this morning after reporting a 32% drop in its first quarter net profit amid the government’s plan to halve broadband internet prices.

At 10.23am, the shares fell 14 sen or 3.33% with 2.06 million shares done for a market capitalisation of RM15.78 billion.

Yesterday, TM said its net profit for the first quarter ended March 31, 2018 fell to RM157.16 million from RM230.43 million a year earlier, as a decline in voice, data and other telecommunication-related services led to a decrease in group revenue.

Its quarterly revenue slipped to RM2.85 billion from RM2.96 billion.

MIDF Amanah Investment Bank Bhd said TM’s 1QFY18 financial performance came in below house and consensus expectations, accounting for 11.2% and 12.2% of full year financial year ending Dec 31, 2018 (FY18) earnings estimates, respectively.

Its analyst Martin Foo Chuan Loong said MIDF is reducing TM's FY18 and FY19 earnings estimates to RM510 million and RM541.3 million, respectively, as it assumes a more conservative earnings contributions from voice, data and others segments.

It also reduced FY18 and FY19 dividends estimates to 12.1 sen and 12.9 sen, respectively.

Foo said the challenging market environment has negatively impacted the group’s voice, data and other revenues but fortunately, the internet revenues continue to record good traction which is mainly attributable to higher mix of unifi customers and resilient unifi average revenue per unit.

“However, we are concerned on the group’s ability to manage its operating expenses efficiently. The cost as a percentage of revenue has increased steadily beyond 90% for the past few quarters. Due to the earnings pressure and the group’s commitment capex commitment for long-term growth, we expect the dividend payment to decline as well,” he added.

He said given the lack of strong positive catalysts, MIDF downgraded its recommendation to “Neutral” from “buy”, with a lower target price of RM4.09 from RM7.72, based on dividend discount model valuation methodology.

Kenanga Investment Bank Bhd analyst Cheow Ming Liang said TM is set to face some operational headwinds with the implementation of the upcoming faster and cheaper broadband plan.

“While the headline impact is likely to be substantial, given the Internet segment accounted for about 36% of the group’s total revenue in 1QFY18, the impact to the earnings could be hit progressively due to the progressive implementation,” Cheow added.

Post-review, it slashed its FY18 and FY19 earnings by 22% and 13%, respectively while downgrading to “market perform” call with lower discounted cash flow-driven target price of RM4.35.

AffinHwang Investment Bank Bhd cut its earnings per share for FY18 to FY20 by 16-21% because it expects weak government and enterprise spending in the second to third quarter of 2018 and and flat-to-lower broadband average revenue per unit (ARPU) compared to earlier assumptions of 2-3% growth.

“We also increased our weighted average cost of capital (WACC) by 100bps to reflect the higher risk premium, in relation to the governments’ plan to halve the broadband price, where the strategy / outcome is still uncertain,” said analyst Isaac Chow.

He believed that weak share price (falling about 31% in three months) has largely priced in the negatives.

The research house maintained a “hold” call on TM with a target price of 4.35.

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