PETALING JAYA: The market may have overestimated the impact of broadband wholesale price adjustments on Telekom Malaysia Bhd’s (TM) profitability.

       CSG-CIMB Research noted that its recent meetings with TM’s management confirmed its view that the wholesale prices for fibre broadband services would not deviate materially from the changes in the Mandatory Standards on Access Pricing announced in February.

       “Meetings with telecommunications companies suggest that negative sentiment towards TM, on the back of 5G industry structure and broadband pricing, is overdone,” the brokerage said.

       “We estimate that the reduction in wholesale prices (before transmission and marketing costs) will be around 9% or RM8 for a 100 megabits per second service in 2023 versus 2022 levels,” it added.

       This should, in its view, lead to a similar reduction in retail service pricing, and would see TM’s fibre broadband average revenue per user decline 7% between 2022 and 2025 to RM125, all else being equal.“Despite this decline, our estimates for TM remain 4%, 11% and 21% ahead of Bloomberg consensus estimates in 2023, 2024, 2025 respectively, 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,” CGS-CIMB Research said.

       It reiterated “add” on TM’s shares, with an unchanged target price of RM6.80 based on 5.7 times the estimated 2024 enterprise value-to-earnings before interest, tax, depreciation and amortisation.

       “We see Bloomberg consensus earnings upgrades post clarity on wholesale fibre broadband pricing as a key catalyst.

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       “Clarity on its 5G aspirations should also help, in our view,” CGS-CIMB Research said. It said that while its recent discussions provided some clarity on the 5G process, the likelihood of TM taking on a network ownership role had also increased.

       “We understand that as part of the efforts to achieve the 80% population coverage requirement for the existing Digital Nasional Bhd’s (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,” CGS-CIMB Research said.

       “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 telecommunication companies to achieve the 80% coverage requirement should also reduce the risk of stranded assets for mobile operators had DNB progressed in its original form.

       “Our base case view is that TM does not take a stake in a 5G network, and instead just be an access seeker,” CGS-CIMB Research said.

       “However, if TM does take a stake, we prefer that it is a minority shareholder, with a mobile network operator as the driver of network deployment,” it noted.

       The brokerage said its estimates had built in an annual fee by TM to the 5G network operators for 5G access.