Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: RHB
Telekom Malaysia Bhd
(Jan 14, RM3.74)
Maintain 'trading buy' at RM3.70 with fair value raised to RM4.05: The take-up of UniFi services is quite low so far, but the management is not too worried, stating that the high-speed broadband (HSBB) network was rolled out with a supply-driven approach in mind. As at December 2010, TM had 33,000 UniFi subscribers out of the 750,000 premises passed as at end-December 2010. Together with 40,000 orders, this indirectly brings its take-up rate to 9.7%, marginally exceeding its initial target of 6%-8%. The blended HSBB ARPU is RM160, implying most subscribers opted for the cheapest package that costs RM149/month.
On a more positive note, the number of installations per month has increased to 300-400, from 100-200 previously. This is mainly driven by expanding the number of UniFi installation teams and upgrading the capability of some teams to install UniFi in two (instead of one) premises per day. Assuming TM sustains this momentum, TM should have at least 125,000 UnFi subscribers out of 1.1 million premises by end-2011. This translates to an expected take-up rate of 11%, but contribution to overall revenue will still be modest, in the range of mid-single digit.
While UniFi is among, if not the cheapest, broadband in the market (measured on per gigabyte (GB) basis), affordability may be hindering take-up. The cheapest UniFi package starts at RM149/month, but mobile operators are offering monthly packages as low as RM38/month. To boost UniFi take-up, TM is embarking on more aggressive marketing to raise brand awareness. We believe TM may not have much room to lower its prices, given the huge cost of the HSBB network at RM11.3 billion (with RM2.4 billion co-investment by the government).
The risks include: 1) further fixed-to-mobile substitution leading to declining revenues; 2) low returns from HSBB project; 3) weaker-than-expected earnings, which could adversely affect dividend payments; and 4) further irregularities on TM's purchasing procedures.
We have left our earnings forecasts unchanged.
We maintain our 'trading buy' call on TM for the high likelihood of 50 sen per share in special dividends (TM has about RM1 per share in gross cash), in addition to its minimum annual dividend per share of 19.6 sen. In total, dividend yields in 2011 could potentially reach 19% (please refer to report dated Dec 3, 2010). We raise our fair value to RM4.05 after imputing the potential special dividends, while retaining the required net yield assumption of 5.5% on the minimum RM700 million dividends. ' RHB Research, Jan 14
This article appeared in The Edge Financial Daily, January 17, 2011.
Company Name: TELEKOM MALAYSIA BHD
Research House: RHB
Telekom Malaysia Bhd
(Jan 14, RM3.74)
Maintain 'trading buy' at RM3.70 with fair value raised to RM4.05: The take-up of UniFi services is quite low so far, but the management is not too worried, stating that the high-speed broadband (HSBB) network was rolled out with a supply-driven approach in mind. As at December 2010, TM had 33,000 UniFi subscribers out of the 750,000 premises passed as at end-December 2010. Together with 40,000 orders, this indirectly brings its take-up rate to 9.7%, marginally exceeding its initial target of 6%-8%. The blended HSBB ARPU is RM160, implying most subscribers opted for the cheapest package that costs RM149/month.
On a more positive note, the number of installations per month has increased to 300-400, from 100-200 previously. This is mainly driven by expanding the number of UniFi installation teams and upgrading the capability of some teams to install UniFi in two (instead of one) premises per day. Assuming TM sustains this momentum, TM should have at least 125,000 UnFi subscribers out of 1.1 million premises by end-2011. This translates to an expected take-up rate of 11%, but contribution to overall revenue will still be modest, in the range of mid-single digit.
While UniFi is among, if not the cheapest, broadband in the market (measured on per gigabyte (GB) basis), affordability may be hindering take-up. The cheapest UniFi package starts at RM149/month, but mobile operators are offering monthly packages as low as RM38/month. To boost UniFi take-up, TM is embarking on more aggressive marketing to raise brand awareness. We believe TM may not have much room to lower its prices, given the huge cost of the HSBB network at RM11.3 billion (with RM2.4 billion co-investment by the government).
The risks include: 1) further fixed-to-mobile substitution leading to declining revenues; 2) low returns from HSBB project; 3) weaker-than-expected earnings, which could adversely affect dividend payments; and 4) further irregularities on TM's purchasing procedures.
We have left our earnings forecasts unchanged.
We maintain our 'trading buy' call on TM for the high likelihood of 50 sen per share in special dividends (TM has about RM1 per share in gross cash), in addition to its minimum annual dividend per share of 19.6 sen. In total, dividend yields in 2011 could potentially reach 19% (please refer to report dated Dec 3, 2010). We raise our fair value to RM4.05 after imputing the potential special dividends, while retaining the required net yield assumption of 5.5% on the minimum RM700 million dividends. ' RHB Research, Jan 14
This article appeared in The Edge Financial Daily, January 17, 2011.
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