Thursday 27 Feb 2025
TM to accelerate digitisation
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This article first appeared in The Edge Financial Daily, on October 26, 2016.

 

Telekom Malaysia Bhd
(Oct 25, RM6.52)
Maintain hold with an unchanged fair value of RM7.10:
We maintain our “hold” call on Telekom Malaysia Bhd (TM) with unchanged forecasts and an unchanged discounted cash flow-derived fair value of RM7.10 per share. This implies an enterprise value and an earnings before interest, taxes, depreciation and amortisation margin for financial year 2017 (FY17) of seven times, which is TM’s three-year average and half of Singapore Telecommunications Ltd’s 14 times.

TM held a teleconference yesterday to address the Budget 2017 announcement that presented the following: Firstly, fixed-line broadband providers will provide faster speeds at the same price beginning January 2017; secondly, broadband speeds will double with the halving of prices within the next two years; thirdly, the government will launch an initiative for Ethernet broadband services in public universities to be raised to a maximum of 100GB per second; fourthly, the Malaysian Communications and Multimedia Commission will provide RM1 billion to ensure the coverage and quality of broadband nationwide reach up to 20MB per second.

TM’s management affirmed that the faster fixed broadband speeds at lower prices as announced by the government are already a part of a global and industry-wide technological trend. However, the government appears to be accelerating TM’s digitisation trajectory, which involves moving towards faster connectivity and convergence of communication services. TM said that the Unifi and Streamyx services will be offered as part of a value combination that involves offering its other fixed and mobility services. On an unbundled basis, the price reduction and speed improvement could be offered for existing customers still on the former VIP5, VIP10 and VIP20 plans of between RM149 and RM249 per month, as well as the new Advance Plan30 at RM199 per month.

TM did not comment on the government’s allocations for Ethernet services in public universities and further investments to drive broadband speeds other than to indicate that they may be part of the group’s current capital expenditure rollouts for the High Speed Broadband Phase 2 and Sub-Urban Broadband programmes.

While TM does not provide specific product breakdowns, we estimate that Unifi and Streamyx accounted for 17% and 13% of the group’s first half of FY16 revenue respectively, including Internet protocol television content.

As the faster broadband speeds offered by Unifi and Streamyx may entice new customers to offset lower prices, TM expects neutral revenue impact in the medium term. Hence, the group maintains its FY16 revenue growth guidance of 3%-3.5% and capex at 25%-30% of FY16 revenue.

The stock’s FY17 price-earnings ratio of 24 times is nearly at parity to its three-year average, while dividend yields are unremarkable at 2%. — AmInvestment Bank Research, Oct 25

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