Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: MAYBANK
Telekom Malaysia Bhd (TM)
(March 29, RM3.43)
Upgrade to buy at RM3.43, target price increased to RM3.86: TM spectacularly and unequivocally quashed misplaced expectations that its high-speed broadband service (HSBB) services would be overpriced. We are now much more confident that consumers on both HSBB's fibre network and the existing Streamyx ADSL (copper wire) network will enjoy a better experience. Upgrade TM to buy with a raised target price of RM3.86 (from RM3.50) as we raise long-term growth assumptions.
TM's HSBB pricing is highly competitive, starting from RM149/month for 5Mbps Internet broadband bundled with pay-TV and fixed voice services. This is within our expectations. As long as TM introduces an entry-level package beginning from a touch below RM150/month, HSBB stands a great chance of being a solid commercial and economic success. Immediately, we expect eligible business customers to upgrade to HSBB's fibre-optic network.
ADSL Streamyx users should benefit too. As more and more users migrate from Streamyx to HSBB's UniFi brand, there is likely to be the knock-on benefit of freeing up capacity on Streamyx. TM continues to invest steadily in its ADSL network as existing demand, including that from outside the Klang Valley, continues to grow, resulting in monthly gross additions of about 36,000 (+13% year-on-year) in January and February 2010.
TM is the undisputed broadband champion, with 1.4 million subscribers (+2% quarter-on-quarter; +12% y-o-y) and a 55% market share at end-2009, churn in its Streamyx services has also dipped below 1% in 2010. This is within our expectations, with customers returning to TM's fixed broadband services having been disappointed by the embellished claims of some wireless broadband operators.
All eyes will be on TM's cash generation and dividends. Due to the front-loaded capital expenditure (capex) for HSBB, we expect a decent 7% net profit growth in 2009, before it begins to accelerate from 2010. Although execution risks remain, TM's core Internet broadband and data services will sustain the minimum RM700 million per annum net dividend.
The discounted dividend model (DDM) reflects undemanding expectations. Assuming TM maintains its undemanding RM700 million per annum net dividend, and earnings grow at just 1.5% per annum post-2012, our DDM-value for TM is RM3.86.
The key overhang of highly overpriced core Internet broadband services is now removed. If TM executes its HSBB platform successfully, we foresee considerable potential upside to our earnings forecasts and thus valuations. Our current RM3.86 target price imputes a weighted average cost of capital (WACC) of 6.8%, risk-free rate of 4%, market return of 10.5% and beta of 0.568. - Maybank IB, March 29
This article appeared in The Edge Financial Daily, March 30, 2010.
Company Name: TELEKOM MALAYSIA BHD
Research House: MAYBANK
Telekom Malaysia Bhd (TM)
(March 29, RM3.43)
Upgrade to buy at RM3.43, target price increased to RM3.86: TM spectacularly and unequivocally quashed misplaced expectations that its high-speed broadband service (HSBB) services would be overpriced. We are now much more confident that consumers on both HSBB's fibre network and the existing Streamyx ADSL (copper wire) network will enjoy a better experience. Upgrade TM to buy with a raised target price of RM3.86 (from RM3.50) as we raise long-term growth assumptions.
TM's HSBB pricing is highly competitive, starting from RM149/month for 5Mbps Internet broadband bundled with pay-TV and fixed voice services. This is within our expectations. As long as TM introduces an entry-level package beginning from a touch below RM150/month, HSBB stands a great chance of being a solid commercial and economic success. Immediately, we expect eligible business customers to upgrade to HSBB's fibre-optic network.
ADSL Streamyx users should benefit too. As more and more users migrate from Streamyx to HSBB's UniFi brand, there is likely to be the knock-on benefit of freeing up capacity on Streamyx. TM continues to invest steadily in its ADSL network as existing demand, including that from outside the Klang Valley, continues to grow, resulting in monthly gross additions of about 36,000 (+13% year-on-year) in January and February 2010.
TM is the undisputed broadband champion, with 1.4 million subscribers (+2% quarter-on-quarter; +12% y-o-y) and a 55% market share at end-2009, churn in its Streamyx services has also dipped below 1% in 2010. This is within our expectations, with customers returning to TM's fixed broadband services having been disappointed by the embellished claims of some wireless broadband operators.
All eyes will be on TM's cash generation and dividends. Due to the front-loaded capital expenditure (capex) for HSBB, we expect a decent 7% net profit growth in 2009, before it begins to accelerate from 2010. Although execution risks remain, TM's core Internet broadband and data services will sustain the minimum RM700 million per annum net dividend.
The discounted dividend model (DDM) reflects undemanding expectations. Assuming TM maintains its undemanding RM700 million per annum net dividend, and earnings grow at just 1.5% per annum post-2012, our DDM-value for TM is RM3.86.
The key overhang of highly overpriced core Internet broadband services is now removed. If TM executes its HSBB platform successfully, we foresee considerable potential upside to our earnings forecasts and thus valuations. Our current RM3.86 target price imputes a weighted average cost of capital (WACC) of 6.8%, risk-free rate of 4%, market return of 10.5% and beta of 0.568. - Maybank IB, March 29
This article appeared in The Edge Financial Daily, March 30, 2010.
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