TELEKOM Malaysia Bhd (TM) is expected to play catch-up in 2H CY2020 with aggressive customer acquisitions amid the near-term focus of providing profitable fixed line connectivity which will remain its key priority.
In the longer run, however, UOB Kay Hian Research foresees opportunities in the telco’s enterprise solutions segment (ie ICT solutions) and fixed-mobile convergence.
“Anecdotally, the opening of the Malaysian economy towards 3Q CY2020 has allowed TM to (i) clear installation backlog; and (ii) actively acquire new subscribers via aggressive Unifi promotions,” wrote analysts Chong Lee Len and Chloe Tan Jie Ying in a company update.
“We gather this will have a positive impact with a pick-up in the number of subscribers in 2H CY2020.”
From a regulatory standpoint, UOB Kay Hian Research noted that market regulator appears cognisant of the fine balance between consumer affordability and investment returns for telcos.
“Our recent meeting with the regulator suggests the Government is satisfied with the price points of TM’s home broadband packages, especially the RM79/month entry-level broadband package,” Chong and Tan pointed out.
As affordable connectivity remains at the forefront of the Government’s target, the research house expects TM to focus on opex (operating expenditure) efficiency with the long-term goal of savings of RM500 mil-RM600 mil over the next five years.
“Apart from headcount freeze (introduced two years back), the management has also re-looked into renegotiations of direct cost contracts with the aim of aligning top-line variables with cost structure,” noted Chong and Tan.
Both analysts also expect TM’s earnings to remain robust in 2H CY2020 on the back of encouraging Unifi subscriber growth, good cost control and seasonally higher TM One order book in the second half of the year.
“Positively, TM is seeing an improvement in collections with the gradual reopening of its physical stores,” UOB Kay Hian Research pointed out.
“As such, TM expects the run rate for bad debt provision to normalise from 3Q FY2020.”
Nevertheless, collection from the enterprise business segment remains challenging as Malaysia undergoes a prolonged lockdown that started in October this year.
All-in, UOB Kay Hian Research maintained its “buy” rating on TM with a discounted cash flow-based target price of RM4.75.
The research house views TM’s share price catalysts as (i) higher-than-expected subscriber growth, (ii) sustainable average revenue per user (ARPU) uplift, (iii) better-than-expected opex savings (especially from Unifi mobile) and (iv) higher-than-expected dividend payout.
“A fixed-line player like TM is expected to fare better than wireless operators given its low customer churn and stable ARPU,” it added.
At 12.30pm, TM was down 4 sen or 0.92% at RM4.30 with 2.28 million shares traded, thus valuing the company at RM16.23 bil. – Nov 10, 2020
