For much of the last 2 years, pressure on broadband prices going lower were very strong. TM share price was in the doldrums below RM3.00 for the longest time but has since gapped up. Was it due to "good quarterly" figures?
Results:
Telekom Malaysia (TM) reported a net profit of RM114.2m in 2QFY19, +12% YoY on the back of lower operating, net finance and tax costs. An impairment amounting to RM124.6m was recognised in the current quarter following the announcement of price adjustment of its Streamyx services. This was not a surprise as the possibility of provision on its copper network assets. Stripping out impairment and other non operating items, normalised 1HFY19 net profit stood at RM523.2m, beating market forecasts at 60% and 70% of full-year estimates respectively. On a QoQ basis, normalised 2QFY19 net profit fell 23.5% on higher direct and manpower costs.
Regulatory pressure on TM has subsided where further decline in broadband prices are unlikely going forward. TM aims to gradually phase out its expensive but slow speed Streamyx services, it could potentially incur higher cost and lose further broadband market share to competitors (note that the decline in Streamyx subscriber base is higher than the increase in Unifi base). Meanwhile, the Cabinet has recently approved the RM21.6bn national fiberisation and connectivity plan (NFCP) over a 5-year period beginning this year. This is expected to be utilised to part-finance the deployment of digital infrastructure, particularly in the underserved areas.
The Rejuvenator
Looking at the price action, and the way EPF has been accumulating, it is likely to be NOT due to just earnings jump to explain the rise in interest. Rumour has it that TM has proposed to the government that it be allocated most of the radio spectrum at 700Mhz, 2300Mhz and 2600Mhz in order for it to be the sole provider of 5G infra.
There are a lot of naysayers who feel that TM may not be the best gatekeeper. I think that proposal may be a longshot at best, but market players seem to think otherwise. I would be guarded on that prospect.
