Telekom Malaysia - Unifi take-up could run ahead of expectation BUY

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD

Research House: AMMB

Price Call: BUY

Target Price: 5.50

- It was reported in local dailies today that TelekomMalaysia (TM) aims to hit its 400,000^th  customer base mark for its high-speedbroadband service (HSBB), Unifi, by year end, citing executive vice president,consumer, Imri Mokhtar.

- It is understood that Unifi customer base has been growingrapidly, surpassing the 300,000 mark yesterday. Unifi is currently enjoyingtake-up rate of over 20% of premises passed (1.2mil premises), surpassing thegroup's expectations of 8%-10%. 

- TM's HSBB service is currently available at 79 exchangeareas which include 62 in the Klang Valley, 3 in Penang, 2 in Kedah, 9 in Johorand one each in Melaka, Negeri Sembilan and Perak. It was also mentioned thatTM expects Unifi take-up rate to continue to increase to 50% of premises passedwithin the next 3 to 5 years. 

- The news comes as a positive surprise to us. At thisjuncture, we have conservatively modelled in 369,000 Unifi subscriber base atyear end (+56% YoY). Our assumptions imply net addition of circa 11,000/month.At ARPU assumption of RM180/month, we estimate HSBB revenue of circa RM650milfor FY12F. 

- If we raise our assumptions closer to management's targetof 400,000 subscriber base by year end, our HSBB revenue forecast increases by5% to RM688mil. In turn, this increases groupwide earnings forecast by 1.5% toRM692mil. 

- Management's target of a 400,000 customer base by year endimplies net addition of 14,000 subscribers a month. This is a slight slowdownversus FY11's net addition rate of circa 17,000 a month. However, we note thatsince 4Q11, Unifi net addition has accelerated to circa 24,000/month. 

- We re-affirm our BUY call on TM at unchanged DCF derivedfair value of RM5.50/share. However there is upside risk to our fair valueshould Unifi take-up remain strong and exceed our current conservativeexpectation. As a yardstick, if we raise our target Unifi subs base to 400,000by year end, our fair value increases to circa RM5.60/share (+2%).   

Source: AmeSecurities