Investment Highlights

• We maintain our HOLD call on Telekom Malaysia (TM) with an unchanged DCF-based fair value of RM2.95/share, based on a WACC of 8.6% and zero terminal growth rate.

• TM announced that Malaysian Football League LLP (MFL) has filed a legal suit against the group for potentially substantive claims up to RM429mil – 68% of FY19F earnings or 11 sen – and a declaration that TM had breached a sponsorship contract between both parties.

• MFL is seeking an order requiring TM to pay RM51.7mil for sponsorship and broadcast fees this year, and a much larger RM377mil for 2020 to 2025. MFL claims that TM had breached the term sheet on 29 Jan 2018 before its expiry on 31 Oct 2018.

• MFL is also seeking a declaration from TM that MFL had lawfully terminated the term sheet in MFL’s March 2019 notice of termination, together with an order for TM to remove all references as a sponsor and broadcast partner.

• Alternatively, MFL wants TM to pay the difference between the sponsorship and broadcast fees which MFL is entitled to receive from TM and any other deals which MFL may secure for 2020 to 2025.

• MFL announced last week that it is ending the sponsorship contract with TM worth RM480mil after reaching a unanimous decision at a board meeting in Johor Bahru.

• TM responded that it is no longer MFL’s sponsor from 2019 onwards, but denied MFL’s claim that it had failed to meet its obligations in the contract between the two parties. TM has instructed its solicitors to take necessary steps to defend MFL’s claim.

• TM’s Unifi brand was signed in February last year as the title sponsor for the Super League and Malaysia Cup for an 8-year partnership deal worth RM480mil until 2025.

• TM has not made any provisions for this claim and we expect it to be categorized under contingent liability as this could be a protracted legal case. Hence, we have not revised our earnings forecasts for now.

• The stock currently trades at a FY19F EV/EBITDA of 6x - below its 3-year average of 7x as dividend yields are unappealing at 2% for a non-FBM KLCI component stock.

Source: AmInvest Research - 22 Mar 2019