KUALA LUMPUR (April 16): Despite being perceived to be rather resilient even in the Covid-19 pandemic, Hong Leong Investment Bank Bhd Research (HLIB Research) has cut its earnings forecast for Telekom Malaysia Bhd (TM).

The projections for the financial year ending Dec 31, 2020 (FY20) to FY21 earnings per share are revised downward by 12% and 13% respectively, as the research firm’s analyst Tan J Young has tweaked the revenue assumptions by imputing slower unifi subs acquisition during the movement control order (MCO), moderated average revenue per user (ARPU) trend and weaker contribution from other revenues.

Although ARPU has stabilised lately, TM prudently expects more erosion post-price revisions towards the end of FY19, said Tan, adding that other revenues may see downward pressure coming from KL Tower ticketing and MMU.

Earnings before interest and taxes (EBIT) to range within RM1 billion to RM1.4 billion, partly due to the significantly higher capital expenditure (capex), which usually entails higher costs as well.

For FY20 capex, it is unchanged at low-to-mid 20% of revenue, circa RM2.5 billion versus FY19’s RM1.4 billion, said Tan.

“Majority of the capex will be allocated to expand fibre networks aggressively targeting high yield areas,” he said, adding that some capex, circa RM10 million, is accelerated in order to cater for the high demand during MCO.

“On the bright side, TM is in the midst of a three-year cost saving journey and believes more can be done through contracts renegotiations and manpower mobilization (more focus on sales and post-sales),” Tan wrote, in a note today.

Nonetheless, he has maintained a “buy” call, but with a lower discounted cash flow (DCF)-derived fair value of RM4.72, from RM4.82, with unchanged WACC of 8% and TG of 0.5%.

At 10.26am, shares of TM were unchanged at RM3.94, valuing the company at RM14.84 billion. Over the past year, the counter rose some 30%, from RM3.03.

“Over the long term, we are particularly positive on its cost optimization measures which are now yielding an impactful outcome. Leveraging on its extensive fibre reach, TM is definitely a prime beneficiary of 5G rollout. Other catalysts include the awards of National Fiberisation and Connectivity Plan (NFCP) and 5G airwaves,” said Tan.

To recap, the tender was initially planned to be completed in 2Q20 and the commercial launch in 3Q20, said Tan, adding that TM still remains confident that it is the lead contender in 5G race, leveraging its most extensive fibre network in the nation.