Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: OSK
Telekom Malaysia Bhd
(July 5, RM3.36)
Maintain neutral at RM3.35 with a target price of RM3.28: According to news reports over the weekend, TM set a target of 6% to 8% subscribers out of its total of 750,000 premises for its high-speed broadband service, UniFi, by end-2010. It was reported that there are currently close to 5,000 subscribers comprising residential and business customers. TM added 18 new exchange areas in July to complement the four residential areas in which the service was rolled out on March 24.
The target of 60,000 subscribers by year-end reflects the maiden guidance from management and implies a monthly addition of about 7,000 to 9,000 per month, or 1,600 to 2,200 subscribers per week, in 2H2010. This compares with our forecast of 20,000 subscribers by end-2010 (premised on 2,500 additions per month from July-December) and the current Streamyx gross additions of about 5,000-7,000 per week. We consider the target to be somewhat stretched as: (i) UniFi's addressable market comprises existing Streamyx users, who are paying RM70-RM90 per month on average; (ii) the fact that UniFi is positioned as a niche product (subscription starts from RM149 per month); and (iii) potential inbound competition from Maxis (see point below). It would suggest that management is eyeing a bigger proportion of subscribers upgrading from their current Streamyx plans. In our June 29 report on TM, we said that the take-up on UniFi may have been diluted by the current 'Super Upgrade' promotion, which is a retention programme devised by TM to compel existing subscribers to upgrade to higher tier plans and the 'Blockbuster' promotion, which is a bundled package offering fixed line and broadband.
Maxis has revealed its intention to roll out high-speed broadband and IPTV to homes by 3Q2010, which in our opinion could pose a longer term threat to TM given that it could potentially bundle mobile services and content from sister company, Astro, effectively providing a quadruple-play value proposition to subscribers. Maxis has immediate access to 12 million mobile subscribers and three million pay-TV (Astro) subscribers to up-sell its services versus TM's 1.3 million premises targeted by UniFi under Phase 1 by end-2012. Maxis is currently in discussion with TM on the lease of wholesale access from UniFi and previously said it could roll out its service to 65,000 premises by end-3Q2010.
We are maintaining our projection on UniFi at this juncture and see revenue from the new service contributing a small 0.8%-2% of TM's group revenue over the next two FYs. The key risk to our forecast is the higher than anticipated take-up in the following months. TM remains a neutral due to its expensive valuations, trading at 19.5 times FY2011 earnings, amid emerging concerns over a potential threat from Maxis, which is also rolling out its fibre-to-the-home (FTTH) service. Maxis benefits from a strong brand name, marketing track record and compelling content from Astro. ' OSK Investment'' Research, July 5
This article appeared in The Edge Financial Daily, July 6, 2010.
Company Name: TELEKOM MALAYSIA BHD
Research House: OSK
Telekom Malaysia Bhd
(July 5, RM3.36)
Maintain neutral at RM3.35 with a target price of RM3.28: According to news reports over the weekend, TM set a target of 6% to 8% subscribers out of its total of 750,000 premises for its high-speed broadband service, UniFi, by end-2010. It was reported that there are currently close to 5,000 subscribers comprising residential and business customers. TM added 18 new exchange areas in July to complement the four residential areas in which the service was rolled out on March 24.
The target of 60,000 subscribers by year-end reflects the maiden guidance from management and implies a monthly addition of about 7,000 to 9,000 per month, or 1,600 to 2,200 subscribers per week, in 2H2010. This compares with our forecast of 20,000 subscribers by end-2010 (premised on 2,500 additions per month from July-December) and the current Streamyx gross additions of about 5,000-7,000 per week. We consider the target to be somewhat stretched as: (i) UniFi's addressable market comprises existing Streamyx users, who are paying RM70-RM90 per month on average; (ii) the fact that UniFi is positioned as a niche product (subscription starts from RM149 per month); and (iii) potential inbound competition from Maxis (see point below). It would suggest that management is eyeing a bigger proportion of subscribers upgrading from their current Streamyx plans. In our June 29 report on TM, we said that the take-up on UniFi may have been diluted by the current 'Super Upgrade' promotion, which is a retention programme devised by TM to compel existing subscribers to upgrade to higher tier plans and the 'Blockbuster' promotion, which is a bundled package offering fixed line and broadband.
Maxis has revealed its intention to roll out high-speed broadband and IPTV to homes by 3Q2010, which in our opinion could pose a longer term threat to TM given that it could potentially bundle mobile services and content from sister company, Astro, effectively providing a quadruple-play value proposition to subscribers. Maxis has immediate access to 12 million mobile subscribers and three million pay-TV (Astro) subscribers to up-sell its services versus TM's 1.3 million premises targeted by UniFi under Phase 1 by end-2012. Maxis is currently in discussion with TM on the lease of wholesale access from UniFi and previously said it could roll out its service to 65,000 premises by end-3Q2010.
We are maintaining our projection on UniFi at this juncture and see revenue from the new service contributing a small 0.8%-2% of TM's group revenue over the next two FYs. The key risk to our forecast is the higher than anticipated take-up in the following months. TM remains a neutral due to its expensive valuations, trading at 19.5 times FY2011 earnings, amid emerging concerns over a potential threat from Maxis, which is also rolling out its fibre-to-the-home (FTTH) service. Maxis benefits from a strong brand name, marketing track record and compelling content from Astro. ' OSK Investment'' Research, July 5
This article appeared in The Edge Financial Daily, July 6, 2010.
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