Shares of Telekom Malaysia, the dominant state-run fixed-line operator, have shed about 3.0% since Friday when Malaysia’s Prime Minister announced the operator will offer higher Internet speed without additional charges.
Telekom Malaysia commands about 90% of the fixed broadband market share in Southeast Asia’s third largest economy. Khazanah Nasional, Malaysia’s state investment holding arm, is the single largest shareholder in Telekom Malaysia with a 29% stake.
JF Apex Securities:
- During the announcement of Budget 2017 last Friday, the government announced that fixed line broadband service providers will offer services at a higher speed for the same price.
- In response to the government’s call, TM has announced its “Broadband Improvement Plan” where eligible subscribers will see their broadband speed doubled at the same price beginning next year subject to technical availability.
- The management does not expect extra capex to be incurred as the infrastructure is well supported by HSBB2 and SUBB projects. As such, its dividend policy is expected to remain intact.
- TM has seen subscriber mix in 1H16 improved to 60% with speed of 4Mb/s and above vs 41% in 2013. Out of 2.37m total broadband customers, 900,000 are UniFi users. For UniFi customers, 68% of them are using 10Mb/s and above in 1H16 compared to 12% in 2013.
- We expect the trend of customers upgrading to higher speed packages to continue in line with better value packages introduced by TM to entice customers by offering higher Mb/s.
- Estimates maintained– We are maintaining our EPS forecast for FY16 and FY17. Despite the free upgrade, we do not expect ARPU to be significantly affected as offering of lower speed UniFi packages such as 5Mb/s, 10Mb/s and 20Mb/s have been phased out with 30Mb/s being the entry package now.
- Maintain HOLD with an unchanged target price of RM6.66 based on DDM valuation.
[PDF]– JF Apex
