Telco stocks fall on broadband prices reduction

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KUALA LUMPUR (Apr 16): Shares in most telecommunication players are down marginally in the morning trades after Putrajaya announced that the fees for mobile and fixed internet broadband packages will drop between 14% and 57% yesterday.

Among the telecommunication stocks, Telekom Malaysia Bhd (TM) led the losers. As at 10.26am, its shares fell 6 sen or 0.81% to trade at RM7.34 with 1.38 million shares done, for a market capitalisation of RM27.523 billion.

This is followed by DiGi.Com Bhd, which lost 2 sen or 0.32% at RM6.22 with 1.51 million shares changing hands with a market capitalisation of RM48.516 billion. Axiata Group Bhd dropped 2 sen or 0.28% at RM7.02 with 861,300 shares done, for a market capitalisation of RM60.535 billion.

Maxis was unchanged at RM7.20 with 397,800 units shares having been traded for a market capitalisation of RM54.055 billion.

In a statement yesterday, Minister Datuk Seri Ahmad Shabery Cheek said mobile broadband packages will be offered at RM25 per month and consumers who sign up for these will have a monthly data cap of 1GB and at least 3G high-speed packet access for both prepaid and post-paid services. The reduction works out to about 14% less than current prices.

As for fixed services, TM will soon be offering a basic broadband package at RM38 a month for 1Mbps of free data usage up to 1GB, which is 57% cheaper than the current RM88 for the basic package.

Despite the reduction in broadband prices, Kenanga IB Research reiterated its Neutral call on the sector in a sector note today.

According to Kenanga IB's telecommunication analyst Cheow Ming Liang, the sector could face some margin pressures as a result of the lower broadband entry prices.

However, he said the impact is likely to be short-lived given consumers' tendencies to upgrade to higher connection speeds as well as subscribe to more valued-added and internet-related services once they have more internet experience.

"We believed with these value-for-money offerings, more consumers will be able to get into the digital mainstream and participate in the digital world," he said.

Meanwhile, Hong Leong Investment Bank Research said the quantum of the data tariff reduction was a negative surprise, especially for fixed broadband.

"With lower price barrier, we expect stronger net adds and traffic volume to partly offset the cut in prices," Hong Leong's analayst Tan J Young said in a sector note today.

"Moreover, the delayed Goods and Services Tax (GST) boost coming in June will also cushion the impact," he added.

According to him, DiGi.Com (fundamental: 1.55; valuation: 2.1) seemed to have the least impact due to small differentials compared to its existing data pricing, followed by Axiata (fundamental: 0.85; valuation: 1.1) and Maxis (fundamental: 1.15; valuation: 1.1).

As for fixed players, Tan said TM (fundamental:1; valuation:1.1) would be impacted the most as internet is the largest revenue contributor to its retail segment.

Hong Leong also has a Neutral call on the sector.

Hong Leong's top pick was Axiata with a Buy calls with a target price of RM7.52 on the back of Celcom's recovery after prolonged Information Technology (IT) transformation, full integration of XL-Axis and strong growth of operating company (OpCos) in emerging markets.

(Notes: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)