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PETALING JAYA: The price cuts announced by Telekom Malaysia Bhd (TM) for its Streamyx plan is a negative for the company, due to the impact on earnings and costs, said analysts.
Over the weekend, TM said it would reduce the price of its 8Mbps Streamyx plan from RM160 a month to RM69 for existing customers, while new customers would get the plan for RM89.
The company is also exploring various solutions such as fibre and wireless connectivity to upgrade the speed of Streamyx customers who are still on its copper network. TM said the migration will be done gradually until 2021, with 70% of its Streamyx customers expected to enjoy Unifi services by end-2020.
“Currently, TM has 872,000 Streamyx subscribers with issues arising when its Unifi customers are able to enjoy lower prices at faster speed compared to Streamyx that is, 30Mbps at only RM79,” said PublicInvest Research.
“While some Streamyx customers have been upgraded to Unifi where there is fibre connection, others could only be upgraded to 4-8Mbps as the infrastructure is still running on the obsolete copper network,” it said in its report.
It said that wireless broadband would be a quick solution for TM, but the take-up rate could be low, as it involves significant upfront cost to customers due to the need to purchase a router that costs RM565 per unit. Alternatively, customers would have to commit to a lock-up period and pay higher monthly fees.
“As we have earlier factored in lower Streamyx prices in our earnings model, our FY19-21 forecasts remain unchanged. Although TM has performed well delivering lower costs in 1Q FY19, we do not expect this to be sustainable,” it added.
It said that TM could incur additional cost over time in order to upgrade and replace its copper network by 2021, although 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 high speed network, we see risk of competitors (namely, Tenaga Nasional Bhd) taking away market share,” it said.
It maintained its target price of RM3.60 on TM but downgraded the stock to “underperform” due to a downside potential of 14%.
Meanwhile, CLSA Research has cut its 19-21CL earnings by 5-11% and lowered its target price to RM4.90 from RM5.20 previously, while retaining its “buy” rating on TM due to its cost cutting efforts, potential re-inclusion in the FBM KLCI and on upside to its dividend policy.
“We expect the impact of reduced prices to be heavier during the initial years, but diminish as more subscribers upgrade to higher-priced Unifi services (entry level plan at RM79 per month) when available. It targets to phase out the copper network by 2025,” said CLSA Research.
In its report, it noted that TM will seek government support for implementation, utilising existing funding to deliver improved broadband services to underserved areas.
“We believe the USP fund could come into play, where telcos are required to contribute 6% of their weighted net revenue. Based on the 2017 USP annual report, the total contribution to the fund amounted to RM1 billion; it had a total of RM8 billion in short-term deposits,” it said.
CLSA Research does not expect the cut in Streamyx prices to derail TM’s share price performance and the stock remains its top pick.
“The focus should be on longer-term catalysts from cost improvement and a potential FBM KLCI re-inclusion. Upside to dividends is a positive wildcard to push a re-rating further,” it said.
