Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Telekom Malaysia Bhd
(Oct 3, RM 4.09)
Upgrade to buy with target price of'' RM4.45: Media report indicated that TM is aiming achieve 650,000 UniFi customers by as early as 2014. Another major milestone it aims to achieve is a 50% penetration rate for UniFi.
We believe that the target, while ambitious, is achievable given that it had achieved a customer base of 109,019 subscribers already as at the end of 2Q11. The latest subscriber estimate by TM is 160,000 with a penetration rate of 16% and according to TM it is in line to reach a customer base of 200,000 by end of CY11. We were pleasantly surprised at the pace in which it reached the current penetration rate level. Last estimate that was communicated to us was 14% (as at end-August 2011).
Assuming that Unifi customer reaches its CY11 'target', this is equivalent to a customer addition of about 10,000 a month. If we were to project it forward by 36 months, theoretically net addition by end-CY14 will be 360,000. While this suggests that the subscriber base will increase to 560,000 by end-CY14, short of its 650,000 'target', we have to bear in mind that net addition per month will increase as the number of premise pass increases. Based on our estimation, the net addition for month of September was slightly less than 20,000.
While we expect contribution from UniFi to be minimal in the immediate term, we believe that UniFi will become an important contributor by FY13. The data and Internet revenues are increasing its contribution and are mitigating the decline in voice. For example, TM posted 1H11 revenue of RM4.38 billion or a 2.5% year-on-year (y-o-y) growth, which was due to strong growth in data and Internet revenues, which grew by +6.9% y-o-y to RM880 million and +16.9% y-o-y to RM941 million respectively. The contribution to total revenue had also increased to 20% (versus 1H10:19.2%) for data and 21.5% (versus 1H10:18.8%) for Internet. We are especially encouraged as the management indicated that 35% of high speed broad band (HSBB) customers are new i.e. new to TM, while 41% were migrating from Streamyx.
We are upgrading our recommendation on TM to 'buy' (from 'trading buy') given that its defensive qualities will be a major attraction for investors in the current volatile market and uncertain global economic situation as evident with its performance during the CY08/CY09 crisis.
TM outperformed the FBM KLCI as it registered a 14.1% increase in its share price between Feb 29, 2008 and April 20, 2009. Comparatively, the FBM KLCI fell 28.7% over the same period. We expect the possibility of special dividends due to cash raised by the sale of Axiata shares in July this year will be an additional bonus for investors. We are estimating a 6.7% dividend yield for FY11. We maintain our target price of RM4.45 which is based on the discounted dividend model, with a weighted average cost of capital of 9.3%. ' MIDF Research, Oct 3
This article appeared in The Edge Financial Daily, October 4, 2011.
Company Name: TELEKOM MALAYSIA BHD
| Research House: MIDF | Price Call: BUY | Target Price: 4.45 |
Telekom Malaysia Bhd
(Oct 3, RM 4.09)
Upgrade to buy with target price of'' RM4.45: Media report indicated that TM is aiming achieve 650,000 UniFi customers by as early as 2014. Another major milestone it aims to achieve is a 50% penetration rate for UniFi.
We believe that the target, while ambitious, is achievable given that it had achieved a customer base of 109,019 subscribers already as at the end of 2Q11. The latest subscriber estimate by TM is 160,000 with a penetration rate of 16% and according to TM it is in line to reach a customer base of 200,000 by end of CY11. We were pleasantly surprised at the pace in which it reached the current penetration rate level. Last estimate that was communicated to us was 14% (as at end-August 2011).
Assuming that Unifi customer reaches its CY11 'target', this is equivalent to a customer addition of about 10,000 a month. If we were to project it forward by 36 months, theoretically net addition by end-CY14 will be 360,000. While this suggests that the subscriber base will increase to 560,000 by end-CY14, short of its 650,000 'target', we have to bear in mind that net addition per month will increase as the number of premise pass increases. Based on our estimation, the net addition for month of September was slightly less than 20,000.
While we expect contribution from UniFi to be minimal in the immediate term, we believe that UniFi will become an important contributor by FY13. The data and Internet revenues are increasing its contribution and are mitigating the decline in voice. For example, TM posted 1H11 revenue of RM4.38 billion or a 2.5% year-on-year (y-o-y) growth, which was due to strong growth in data and Internet revenues, which grew by +6.9% y-o-y to RM880 million and +16.9% y-o-y to RM941 million respectively. The contribution to total revenue had also increased to 20% (versus 1H10:19.2%) for data and 21.5% (versus 1H10:18.8%) for Internet. We are especially encouraged as the management indicated that 35% of high speed broad band (HSBB) customers are new i.e. new to TM, while 41% were migrating from Streamyx.
We are upgrading our recommendation on TM to 'buy' (from 'trading buy') given that its defensive qualities will be a major attraction for investors in the current volatile market and uncertain global economic situation as evident with its performance during the CY08/CY09 crisis.
TM outperformed the FBM KLCI as it registered a 14.1% increase in its share price between Feb 29, 2008 and April 20, 2009. Comparatively, the FBM KLCI fell 28.7% over the same period. We expect the possibility of special dividends due to cash raised by the sale of Axiata shares in July this year will be an additional bonus for investors. We are estimating a 6.7% dividend yield for FY11. We maintain our target price of RM4.45 which is based on the discounted dividend model, with a weighted average cost of capital of 9.3%. ' MIDF Research, Oct 3
This article appeared in The Edge Financial Daily, October 4, 2011.
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