KUALA LUMPUR: The reduction in wholesale rates as per the new mandatory standard on access pricing (MSAP) announced by the Malaysian Communications and Multimedia Commission (MCMC) would have negative impacts on Telekom Malaysia Bhd's (TM) earnings given that it is the main network provider in the country.
Public Investment Bank Bhd (PublicInvest) said, however, that the impact will depend on its agreements with the telecommunication companies leasing the infrastructure from TM. These agreements are based on commercial contracts that may differ from the MSAP level.
"In our opinion, TM could post a lower profit in the early implementation stage, but earnings could rebound due to various cost optimisation measures in place. In addition, we expect the growing demand for data centres and the offering of more value-added services to minimise the impact of lower wholesale prices," the bank-backed research firm said in a note today.
To recap, the MCMC, in February this year, released the new wholesale access pricing as per the MSAP structure. However, the MSAP can only take effect once the wholesale agreements between TM and access seekers are concluded. The MSAP sets the wholesale rates for various telecommunication services, which include broadband access prices.
PublicInvest further noted that for TM's upcoming third quarter (3Q) FY23 results, the research firm will not likely see any significant impact arising from the MSAP. However, TM could still make some provision for downward re-pricing of wholesale rates.
Meanwhile, TM One should continue to deliver weaker performance due to the reduction in prices of large contracts, but this may be mitigated by the recognition of tax losses, which will be set off against profit.
"In our current forecasts, we have factored in lower internet prices, but we expect the impact on the group's earnings will be mitigated by the recognition of tax credit in FY23–24 and a higher contribution from TM Global.
"We are forecasting FY23 earnings to fall by 4 per cent while FY24 will remain flat. Nevertheless, we do not rule out further downside risk should the decline in wholesale rates be larger than expected.
"At this juncture, we make no changes to our earnings forecasts. Our call for the stock is predicated on TM's leading position as the country's network infrastructure provider, benefiting from the deployment of the 5G network and growing demand for hyperscale data centres," PublicInvest noted.
PublicInvest maintains an Outperform call for the stock with a 12-month target price of RM6.20 from the current price of RM4.97.
