The new Mandatory Standard on Access Pricing (MSAP) will result in reduced access prices and ultimately leading to cheaper broadband packages offered by telcos. We see similarity with an earlier reduction implemented in 2018, and also potentially similar impact to TM’s bottom line (i.e. lower pricing mitigated by higher subscriber growth). We cut our FY23F earnings by 6%, reduce our TP 5% to RM7.85 (from RM8.30) but maintain our OUTPERFORM call.

New mandatory access pricing. The Edge reported last Saturday that the Malaysian Multimedia Commission (MCMC) has released its new mandatory standard on access pricing (MSAP) which will see the introduction of new price ceilings for Telekom Malaysia’s (TM)’s high speed broadband network (HSBB). This new MSAP replaces the version that was first implemented in 2018, under the recommendation of the then Minister of Communications and Multimedia YB Gobind Singh Deo.

No significant impact. Clearing the air, the new MSAP has little impact on TM’s broadband packages. In 2018, its ARPU was down 6% while data revenue declined 9%. Following the 2018 reduction, its Unifi’s ARPU suffered a 6% YoY decline in FY18, but this was mitigated by a 19% increase in subscribers, stimulated by the improved affordability of the service. We expect the same impact for 2023, supported by the increase in population coverage under the Jendela initiative plus the government’s initiative to enhance digital technology application in all aspects of life from business, entertainment and education. Following this revision in MSAP, we pencilled in a conservative decline of 9% for TM’s ARPU to RM127 for FY23. For data revenue we input in a reduction of 9% to RM3.3b.

Recall that in 2018, MCMC rolled out the (MSAP), effecting a 43% reduction in the price of the limited fixed broadband package. Prices for the new broadband is still not confirmed but within the network services, end-to-end and trunk transmission services will see staggered reduction in prices of 25% to 75% across a three-year period from 1 March 2023. In June 2018, Gobind Singh declared that broadband prices will be brought down by at least 25% and we believe the reduction in access prices will be around a similar amount. In announcing the 2023 MSAP, MCMC expects growth for data traffic subscription of 20% for 2023-2025.

Forecasts. We revised down our FY23E earnings forecast by 6% based on the above assumptions including revising up our Unifi subscription assumption by 10% (5% previously).

TP revised down by 5% to RM7.85 on an unchanged 7x FY23F EV/EBITDA (in line with the average historical forward EV/EBITDA of the broadband sector). There is no adjustment to TP based on ESG given a 3-star rating as appraised by us (see Page 3).

We like TM on account of: (i) positive tailwinds on the digital space as economies reopen, (ii) the enhanced network coverage nationwide boosting internet demand from both the public and businesses, and (iii) its competitive offering with added 5G availability. We see buying opportunities as the downside risks related to the new MSAP has been resolved. Furthermore, we expect positive news coming from the government’s clarification concerning the Single Wholesale Network which is expected in March 2023. Reiterate OUTPERFORM.

Risks to our call include: (i) weaker-than-expected data and internet revenue, (ii) stronger-than-expected OPEX, and (iii) irrational competition between players.

Source: Kenanga Research - 20 Feb 2023