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Maybank IB: TM to continue expanding its fibre last-mile coverage

Transitioning from copper to fibre is an easy way for telcos to reduce their carbon footprint, says analyst

by S BIRRUNTHA / pic by ARIF KARTONO

TELEKOM Malaysia Bhd (TM), which presently operates both copper (Streamyx) and fibre (Unifi) networks, is expected to continue expanding its fibre last-mile coverage to pose less threats to the environment.

Maybank Investment Bank Bhd (Maybank IB) research analyst Tan Chi Wei said transitioning from copper to fibre is an easy way for telecommunications companies (telcos) to reduce their carbon footprint.

Apart from capacity superiority, fibre is also less energy intensive relative to copper as data are transmitted by light, he added.

“TM is constantly exploring ways to reduce its carbon footprint and has already begun moving its copper broadband subscribers to the less energy-intensive fibre.

“We expect TM to continue expanding its fibre last-mile coverage and believe the telco would eventually shut down its copper broadband network,” Tan said in a recent research note.

Nevertheless, he noted that telcos are not the major carbon emitters, and thus do not pose a significant threat to the environment.

He said environmental risks are inherently less pertinent for telcos, with operations being neither energy nor emission intensive.

He also highlighted that environmental, social and corporate governance pressures faced by telcos are generally benign.

However, Tan said from an operational perspective, TM could improve the management of its key social issues such as digital inclusion and data protection. The national telco is the quintessential government-linked company with implicit nation-building responsibilities.

Thus, he noted that TM’s operations and investments, such as on-land fibre and submarine cables, are not solely driven by commercial viability as nation-building responsibilities could run contrary to the company’s profitability.

Meanwhile, Tan said the acquisition of mobile broadband company P1 (now renamed Webe) in 2014 was TM’s only notable mergers and acquisitions transaction in recent years.

However, he pointed out that the foray into the already crowded mobile space in the aim of achieving convergence was contentious, with Webe having not been profitable since being acquired.

He added that the TM mobile arm, which provides free data of 1GB per day to subscribers during the recent Movement Control Order (MCO), has inevitably affected monetisation of the already loss-making entity.

On corporate governance issues, Tan said TM’s constitution stipulates the Finance Ministry as a special shareholder, with the power to appoint directors including EDs to the board.

He noted that the board currently has 11 directors, comprising one ED, four non-independent non-EDs (including the chairman) and six independent non-EDs.

There are presently three women on the board (27% representation), and TM has yet to formally adopt the 30% female board representation target as its policy. With that, Maybank IB said fundamentally, it is viewing TM’s risk-reward as being merely balanced presently.

The research house maintained its ‘Hold’ call on TM with an unchanged target price of RM4.30.

For its second quarter ended June 30, 2020, TM’s net profit soared 141% year-on-year to RM274.75 million compared to RM114.18 million a year ago.

Its earnings per share also surged to 7.3 sen against the 3.04 sen recorded last year.

However, the group’s revenue fell to RM2.59 billion from RM2.77 billion a year ago, due to the new Streamyx price adjustments and restricted economic activities during the MCO.

The group also posted declines in revenue for all lines of products except for data services.

TM’s share price closed 0.47% or two sen lower at RM4.20 on Wednesday, valuing the company at RM15.85 billion.

Zukri

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