KUALA LUMPUR (June 25): AmInvestment Bank today downgraded Telekom Malaysia Bhd (TM) from a “buy” to “hold” with an unchanged forecast and discounted cash flow-based (DCF) fair value of RM4.08 per share.

The research house said the share price had surged by 50 per cent to its net fair value since being upgraded on May 30, 2019 and following TM’s strong first quarter 2019 (Q1FY19) results, driven by a surprisingly sharp 18 per cent drop in operating costs.

At noon-break today, TM’s shares were 13 sen higher at RM4.18 with 7.74 million shares changing hands.

“While management indicated no significant 1QFY19 writebacks for cost provisions incurred last year, we remain wary of seasonally higher cost expenditures towards the second half (2HFY19).

“We highlight that the group’s 1QFY19 capital expenditure, which halved year-on-year to RM151 million, accounted for only 5.4 per cent of revenue versus management’s FY19 guidance of 18 per cent,” it said in a note today.

Hence, in AmInvestment Bank’s view, the agenda to implement cost efficiency initiatives remain key to TM’s prospective earnings recovery, given that the decline in Streamyx customers had more than offset UniFi increases consecutively since 2QFY17.

In the 1QFY19,  Streamyx users dropped by seven per cent quarter-on-quarter (QoQ) and and 23 per cent year-on-year (YoY) to 872,000, while new UniFi customers registration rose by only two per cent QoQ and 12 per cent  YoY to 1.3 million customers.

“Hence, FY19F revenue outlook remains flattish with the decline in UniFi’s average revenue per user expected to taper off due to most customers opting for faster speed packages,” it added.

 AmInvestment Bank said the appointment of Datuk Noor Kamarul Anuar Nuruddin as TM’s new managing director/ group chief executive officer (CEO) provided some reassurance to policy continuity, as Imri Mokhhtar, the former acting CEO, resumed his previous role as the chief operating officer.

“However, we are cautious on the new strategic direction, which Kamarul could be embarking on following TM’s impressive cost cutting performance in 1QFY19, albeit briefly under Imri’s management,” it added.