This article first appeared in The Edge Financial Daily on July 31, 2019
Telekom Malaysia Bhd
(July 29, RM4.11)
Downgrade to underperform with an unchanged target price of RM3.60: According to news reports, Telekom Malaysia Bhd (TM) will be reducing the price of its eight megabits per second (Mbps) Streamyx plan from RM160 a month to RM69 for existing customers while new customers can get the plan for RM89. It is also exploring various solutions like fibre and wireless connectivity to upgrade the speed of Streamyx customers who are still on its copper network. The migration will be gradual, starting now until 2021. It expects 70% of its Streamyx customers to enjoy Unifi services by end-2020. As we have earlier factored in lower Streamyx prices in our earnings model, our financial year ending 2019 until 2021 (FY19to FY21F) forecasts remain unchanged. Although TM has performed well delivering lower costs in the first quarter of FY19 (1QFY19), we do not expect this to be sustainable. Costs could increase as TM will be required to invest into upgrading and replacing the slower speed copper network.
The price cut of 57% from RM160 to RM69 a month is for the eight Mbps plan. Currently, TM has 872,000 Streamyx subscribers with issues arising when its Unifi customers are able to enjoy lower prices at faster speeds compared to Streamyx, for example, 30Mbps at only RM79. While some Streamyx customers have been upgraded to Unifi where there is fibre connection, others could only be upgraded to four to eight Mbps as the infrastructure is still runnning on the obsolete copper network. We believe wireless broadband would be a quick solution but the take-up rate could be low as it involves significant upfront costs to customers due to the need to purchase a router which costs RM565 per unit. Alternatively, customers would have to commit to a lock-up period and pay higher monthly fees.
We have already factored in lower Streamyx prices in our earnings forecasts when mandatory standard on access pricing was first announced, assuming an average revenue per user of RM70, RM68 and RM65 for FY19F, FY20F and FY21F respectively. However, as TM aims to upgrade and replace its copper network by 2021, it could incur additional costs over time, though it is also seeking funding support from the government in providing high-speed broadband to underserved areas. For areas where TM is unable to migrate customers to a high-speed network, we see risk of competitors (for example Tenaga Nasional Bhd) taking away market share. — PublicInvest Research, July 29