TM’s earnings downtrend to continue on stiffer competition

Telekom Malaysia Bhd (TM) is expected to continue facing sustained pressure to its earnings in the near future as challenging operating conditions persist within the telcommunications (telco) sector with particular pressure on TM.

An analyst with a local brokerage said the firm, which last posted a year-on-year (YoY) increase in net profit in 2017, will probably post a weak fourth quarter ended Dec 31, 2018 (4Q18), results which are expected to be released towards the end of this month.

“TM won’t be showing a good set of results because they have been lowering unifi rates, so some users will migrate to cheaper plans, which would lower their ave-rage revenue per user,” the analyst told The Malaysian Reserve.

TM posted its first quarterly net loss in 10 years in 3Q18, when the group slipped into the red with a net loss of RM175.59 million versus a net profit of RM211.82 million made in the same quarter a year ago.

The net loss was attributed mainly to impairments on wireless and fixed network assets, while revenue for 3Q18 was marginally higher at RM2.95 billion against RM2.94 billion achieved the year prior.

For the nine months ended Sept 30, 2018 (9M18), the company recorded a net profit of RM83.5 million compared to the RM652.74 million profit registered the year before, while revenue dipped to RM8.73 billion from RM8.89 billion in 9M17.

The company’s last YoY increase in net profit was in 4Q17, when earnings expanded to RM277.01 million from RM154.31 million previously. Revenue was lower at RM3.2 billion in 4Q17, versus RM3.24 billion achieved a year ago.

Notably, the stronger net profit in 4Q17 was helped by a foreign-exchange (forex) gain on the group’s borrowings during the quarter, compared to forex losses experienced in the last quarter of 2016.

Year 2018 was tough for TM, as competition stiffened following regulatory changes such as the implementation of the Mandatory Standard on Access Pricing (MSAP) beginning June 8.

The MSAP is a price ceiling that determines how much wholesale network providers can charge other telcos seeking access to high-speed broadband (HSBB).

As TM charges other players for access to its HSBB network, the enforcement of the MSAP resulted in lower access pricing that in turn affected the group’s earnings.

The government also began pushing hard for faster broadband speeds at lower prices last year, which led to broadband players slashing prices, revising data quotas and even offering new packages to take advantage of customers looking to jump ship.

The fixed-broadband field, once dominated by TM, is now arguably a more open playing field.

TM’s earnings downtrend to continue on stiffer competition

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