TELEKOM Malaysia (TM) will be seeking the 700MHz spectrum instead of crowding an already highly competitive mobile market, said Hong Leong Investment Bank Research today.
In the note, the research house also maintains its buy call on the back of unchanged DCF-derived fair value of RM5.17 with WACC of 7.5% and TG of 0.5%.
TM’s plan for the 700MHz spectrum (not C-band) is to offer affordable fixed wireless access broadband in rural areas.
“TM has reiterated that it does not intend to be another player in an already overcrowded and oversaturated mobile market as it does not have a matured network.
“Unifi Mobile is positioned merely to complement fixed offerings with convergence proposition only,” wrote analyst Tan J Young.
“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 and 5G airwaves.”
Meanwhile, the separation into InfraCo and ServiceCo is expected to lead to better efficiency and customer satisfaction while data centre demand is encouraging on the back of accelerated cloud adoption amid the movement control order (MCO). The research house said collection remains robust and impact from the MCO manageable.
“Separated from its service arm, this wholesale business will be more agile operationally and neutrally positioned to all access seekers including its own.
“Its main focus will be providing connectivity (mainly demand-based fibre rollouts) and quality of service. Recurring rental payment from access seekers is expected to yield income stability,” the note said.
On the other hand, ServiceCo, as an in-house access seeker, plays an important role in customer acquisition and incentivising subscribers to upgrade from Streamyx to Unifi with product refresh to improve asset monetisation.
The research house found that data centres are seeing greater demand as businesses accelerated cloud computing adoption amid the movement control order.
Tan wrote that the impact from the MCO is manageable for TM as large tier -1 enterprise clients remain financially sound and only a fraction of mid-to-small enterprises requested for payment deferment and discounts that will be evaluated on a case-by-case basis.
“Realising that its sales and marketing team is understaffed (<10% of overall), TM is mobilising its workforce to the front through training and upskilling. Going forward, its huge workforce (about 24,000) is expected to trend downwards due to natural attrition.” – June 25, 2020