Analysts concerned about impact on TM’s earnings from MSAP

TM slips into the red in 3Q, posting a net loss of RM175.6m due to huge impairments on its wireless and xed network assets


TELEKOM Malaysia Bhd’s (TM) move to cut its dividend payout rate has put analysts on notice to likely lower their target price for the telecommunications service provider on fears earnings are under pressure from the Mandatory Standard on Access Pricing (MSAP) implementation across the sector.

TM slipped into the red in its third quarter (3Q) ended Sept 30, 2018, posting a net loss of RM175.59 million versus a net profit of RM211.82 million in the same corresponding period last year.

It was a first quarterly loss in a decade due to huge impairments on its wireless and fixed network assets.

BIMB Securities Sdn Bhd research analyst Mohd Khairul Fahmi Abd Hamid said although he has not revised TM’s target price yet, he expects a decrease in the near future.

“Although it appears like it is a pressure on the telco industry itself, TM is facing the brunt of it due to being the main Internet provider as well from the MSAP implementation, whose prices have been reduced by almost half,” he told The Malaysian Reserve (TMR).

Following the implementation of MSAP on June 8, TM faced a 43% reduction in its entry-level package price to RM79, and was reported to have increased its connection speed by 10 times.

Maybank Investment Bank Bhd research analyst Tan Chi Wei wrote that TM’s Streamyx service continued to lose its subscribers at a faster rate, resulting in an overall decline in TM’s total retail broadband subscribers on Nov 27, 2018.

“We maintain ‘Hold’ with a lower RM2.40 target price as we incorporate the new lower-priced plans in our forecasts,” he said.

Mohd Khairul Fahmi added that the descent of TM share price reflects investor uncertainty as there’s no indication of the company’s future plans, other than the move to lower its dividend payout rate.

“This is probably to bolster their capacity for future plans and their capital expenditure,” he said.

To recap, the company announced to distribute yearly dividends of 40% to 60% from its net profit versus its dividend payout ratio of at least 100% in the past years.

On his report on TM dated Nov 27, 2018, Mohd Khairul Fahmi placed TM’s shares on ‘Hold’ with a lower target price to RM2.35.

“This is mainly to reflect higher risk to its business outlook. Sell on strength,” he wrote.

Rakuten Trade Sdn Bhd research head Kenny Yee Shen Pin said the pressure is likely to be long term for TM considering it has been dropped off the FTSE Bursa Malaysia KLCI list.

“This downward trend is not just faced by TM, but also Axiata Group Bhd and Maxis Bhd due to the MSAP,” he told TMR.

He added that this was also due to the government’s move to increase competition into the market.

“Their margins are expected to be affected in the long term, too, so the company will have to brace for a structural change in the industry,” he said.

TM’s share price closed 1.15% lower at RM2.58 yesterday versus last Friday’s price.

Its fellow telco providers’ share prices also closed lower yesterday, with Maxis 0.74% lower at RM5.36, Axiata Group down 2.06% at RM3.80 and DiGi.Com Bhd falling 2.23% to close the trading day at RM4.39.