The wholesale prices for fibre broadband services will not deviate materially from the changes in the Mandatory Standards on Access Pricing (MSAP) announced in Feb 2023, said CGSCIMB in the recent company note.
“As per our report Malaysia Telcos, Clarity on 5G to drive rerating, we estimate that the reduction in wholesale prices will be 9% or RM8 for a 100Mbps service in 2023 vs. 2022 levels. This should, in our view, lead to a similar reduction in retail service pricing, all else being equal, and will, in our view, see TM’s fibre broadband Average Revenue Per Unit (ARPU) decline 7% between FY22 and FY25F to RM125,” said CGSCIMB.
Despite this decline, CGSCIMB’s estimates for Telekom Malaysia (TM) remain 4%/11%/21% ahead of Bloomberg consensus estimates in FY23F/24F/25F, suggesting the market may be over-estimating the impact of the wholesale price adjustments and their impact on retail prices and thus TM’s profitability.
Recent discussions have also provided some added clarity on the 5G process, albeit raising the likelihood of TM taking on a network ownership role as well.
“We understand that as part of the efforts to achieve the 80% population coverage requirement for the existing DNB 5G (Entity A) network, ALL operators who intend to take an equity stake in either Entity A or the second 5G network (Entity B), must take a stake in Entity A,” said CGSCIMB.
Once the 80% target is achieved, parties wishing to move to Entity B will have their stakes acquired by those left in Entity A. The coming together of telcos to achieve the 80% coverage requirement, the way CGSCIMB sees it, should also reduce the risk of stranded assets for mobile operators had DNB progressed in its original form.
CGSCIMB’s base case view is that TM does not take a stake in a 5G network, and instead just be an access seeker. However, if TM does take a stake, CGSCIMB prefers that it is a minority shareholder, with a mobile network operator as the driver of network deployment.
Their estimates currently build in an annual fee by TM to the 5G network operators for 5G access. CGSCIMB suggests a Target Price of RM6.80 and maintains the Add call.
“We see Bloomberg consensus earnings upgrades post clarity on wholesale fibre broadband pricing as a key catalyst. Clarity on its 5G aspirations should also help, in our view. Key downside risks would be a steeper cut in wholesale prices and TM venturing into a 5G network on its own,” said CGSCIMB.
