KUALA LUMPUR (Sept 25): The reduction in broadband internet price, following the new Mandatory Standard on Access Pricing (MSAP) after September 2023, is not expected to significantly impact Telekom Malaysia Bhd (TM)’s upcoming third quarter results, according to PublicInvest Research.

The research house said while the downside risks to TM’s earnings for the fiscal years 2023-2025 once the MSAP is put into effect has been previously highlighted, the telco could make provision for downward repricing of wholesale rates.

Additionally, for the third quarter ending Sept 30, 2023 (3QFY2023), TM One’s performance may remain weaker due to the price reduction in large contracts, mitigated by the recognition of tax losses, which will be set-off against profits, the research house said

PublicInvest said the impact on TM’s earnings will be softened by tax credits recognised in the fiscal years 2023-2024, as well as increased contributions from TM Global.

“We are forecasting FY2023 earnings to fall by circa 4%, while FY2024 will remain flat. Nevertheless, we do not rule further downside risk, should the decline in wholesale rates be larger-than-expected.,” it said in a note on Monday.

PublicInvest’s outperform call with a target price of RM6.20 on TM is based on its leading position as Malaysia’s network infrastructure provider, which positions the company to benefit from the deployment of the 5G network and the growing demand for hyperscale data centres.

These factors, coupled with TM’s strategies for cost optimisation and the diversification of its service offerings, are expected to mitigate the impact of lower wholesale prices on the company’s earnings.

A recap on the MSAP and its implications

The Malaysian Communications and Digital Minister Fahmi Fadzil had previously announced that the Malaysian Communications and Multimedia Commission (MCMC) is set to finalise discussions with wholesale broadband service providers.

The MSAP, which was released by the MCMC in February 2023, establishes the wholesale rates for various telecommunication services, including broadband access prices. However, the MSAP can only take effect once TM concludes its wholesale agreements with access seekers.

Therefore, PublicInvest said the actual impact on TM’s earnings will depend on the specific agreements reached with telecommunication companies leasing TM’s infrastructure. These agreements are based on commercial contracts that may differ from the levels set by the MSAP.

“In our opinion, TM could post lower profit in the early stage of implementation but earnings could rebound due to various cost optimisation measures in place,” it added.

Additionally, continued growth in data centre demand and the offering of value-added services are expected to offset the impact of lower wholesale prices, the research house said.