Telekom Malaysia (T MK) Neutral (Maintained) Communications - Telecommunications Target Price: MYR5.30 Market Cap: USD5,812M Price: MYR5.27
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Corporate News Flash, 1 August 2013 Telekom Malaysia (T MK) Neutral (Maintained) Communications - Telecommunications Target Price: MYR5.30 Market Cap: USD5,812m Price: MYR5.27 Macro Risks 2 BPL Comes To HyppTV Growth . 2 0 Value . 02 0 . 01 0 We are mildly positive on TM’s move to acquire selected Barclays . Telekom Malaysia (T MK) 0 Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) Premier League (BPL) live matches from Astro as we believe the 0 6.4 113 content will not come cheap and is unlikely to materially affect earnings 0 in the short term. Besides competitive reasons (for Astro), TM may have 6.2 108 chosen to have limited access to BPL to avoid squeezing margins 6.0 103 already pressured by high labour costs and HSBB maintenance costs. 5.8 98 BPL on HyppTV. Telekom Malaysia (TM)’s wholly-owned subsidiary TM 5.6 93 Net SB yesterday announced it has entered into a Channel Supply Agreement (CSA) with Astro Malaysia Holdings (ASTRO MK; BUY, FV: 5.4 88 MYR3.36) for the carriage of two Astro SuperSport Channels on 5.2 83 HyppTV. The CSA will allow TM’s broadband subscribers, of both Streamyx and UniFi, access to premium sports content, including 5.0 78 25 selected BPL live matches for seasons 2013/14 to 2015/16. 20 Mildly positive for TM. With the CSA, Streamyx and UniFi subscribers 15 will be able to have access, albeit on a limited basis, to the BPL through 10 HyppTV. This offers TM the opportunity to uplift its average revenue per 5 user (ARPU), but this may not directly translate into earnings in the short term due to the associated content costs, which we believe will not come 12 12 12 13 13 13 - - - - - - cheap. Oct Apr Jun Feb Dec Aug Volm Source: Bloomberg TM to keep watch on margins. Given the high cost of the BPL content – media reports indicate Astro having paid around MYR800m for the Avg Turnover (MYR/USD) 26.6m/8.58m rights to air the three upcoming seasons – it is not surprising that TM will Cons. Upside (%) 4.9 have chosen to have access to only selected BPL matches. We believe Upside (%) 0.6 TM would also like to keep a watch on its margins and is therefore unlikely to spend too much for full access to the BPL if this was an 52-wk Price low/high (MYR) 5.15 - 6.31 option. TM spends far less on content costs (we estimate around Free float (%) 44 MYR200m-MYR300m this year) compared to Astro (roughly MYR1.2bn). Shareholders (%) Investment case. We remain NEUTRAL on TM with an unchanged DCF Khazanah Nasional 28.7 valuation (WACC: 8.1%, TG: 1.5%) of MYR5.30. Management is keeping its gun powder dry on capital management prospects in view of Employees Provident Fund 15.2 a MYR2.1bn bond due for repayment later this year while capex remains Permodalan Nasional Berhad 11.8 elevated. However, TM’s gearing level looks comfortable, which suggests it might refinance the borrowings and thus free up its cashflow. Shariah compliant Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total turnover (MYRm) 8,791 9,151 9,994 10,483 11,035 Reported net profit (MYRm) 1,207 1,191 1,264 889 773 Recurring net profit (MYRm) 562 635 881 889 773 Recurring net profit growth (%) 19.9 13.1 38.7 0.9 (13.0) Core EPS (MYR) 0.16 0.18 0.25 0.25 0.22 DPS (MYR) 0.20 0.20 0.22 0.22 0.20 Dividend Yield (%) 3.7 3.7 4.2 4.2 3.7 Core P/E (x) 33.3 29.7 21.4 21.2 24.4 Return on average equity (%) 16.4 15.7 17.7 13.7 12.6 P/B (x) 2.44 2.54 2.73 3.08 3.04 P/CF (x) 6.29 6.21 6.92 6.86 6.22 EV/EBITDA (x) 7.09 6.92 7.09 7.37 7.09 Lim Tee Yang CFA +603 9207 7607 Net debt to equity (%) 15.1 23.2 40.7 55.4 58.2 Our vs consensus EPS (%) 5.3 (10.7) [email protected] Source: Company data, RHB estimates See important disclosures at the end of this report Powered by Enhanced Datasystems’ EFATM Platform 1 Telekom Malaysia (T MK) 1 August 2013 Recommendation Chart Price Close 6.7 Recommendations & Target Price NR 3.55 3.55 3.55 4.68 5.85 5.85 6.10 3.84 3.84 4.24 6.60 5.80 6.00 6.2 3.55 5.7 4.05 4.05 5.2 4.7 4.2 3.7 3.2 2.7 Buy Neutral Sell Trading Take Profit Not Rated 2.2 Buy Aug-08 Nov-09 Feb-11 May-12 Source: RHB estimates, Bloomberg Date Recommendation Target Price Price 2013-06-07 Neutral 6.00 5.41 2013-05-31 Neutral 6.00 5.49 2013-05-20 Neutral 5.80 5.46 2013-03-12 Neutral 5.80 5.31 2013-03-07 Neutral 5.80 5.32 2013-02-28 Neutral 5.80 5.32 2012-12-03 Buy 6.60 5.46 2012-10-12 Buy 6.60 6.29 2012-09-11 Buy 6.60 6.05 2012-08-30 Buy 6.60 6.08 Source: RHB estimates, Bloomberg See important disclosures at the end of this report 2 RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. 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