Investment Highlights

• We maintain our HOLD call on Telekom Malaysia (TM) with unchanged forecasts and DCF-based fair value of RM3.50/share based on a WACC of 7.3% and terminal growth rate of 1%. This implies an FY20F EV/EBITDA of 5x.

• TM has launched a promotional 40% discount on its unlimited data Unifi Mobile postpaid plan, currently priced at RM99/month to a discounted RM59/month from now until 31 December 2019. This can be signed up online with free SIM card delivery.

• With a lock-in contract for 12 months, the lower subscription fee translates to an annual savings of RM480. Although mobile data is unlimited, the plan only comes with 10GB of monthly LTE data for hotspot, which can be added by 500MB for RM8 or 1GB for RM15.

• While this plan is available for everyone, including nonMalaysians aged 18 and above, it is not available for existing Unifi Mobile subscribers. During registration, a RM100 upfront payment will be required to offset future bill. However, this will be waived if subscribers of other operators are porting from their existing number to Unifi.

• While offering a much better value proposition from its current plan, this new promotion is almost 2x U Mobile’s GX30 prepaid mobile plan which offers unlimited data at only RM30/month. Even U Mobile’s GX50 postpaid plan, which offers unlimited data, is a lower priced RM50/month.

• Digi currently offers unlimited data at RM100/month via online subscription, while Celcom and Maxis do not offer plans with unlimited data.

• While part of TM’s efforts to gain mobile market share in tandem with its free Unifi Home fibre promotion until 31 December 2019, we expect that TM’s mobile strategy to face stiff competition from U Mobile’s already established network, marketing outlets and more attractive plans.

• Going forward, we view TM’s growth to be largely driven by its fibre propositions vs. the still loss-making cellular segment, notwithstanding the group’s quad-play convergence strategy as cost and consistent mobile connectivity remain key issues for consumers.

• We note that TM’s new fibre broadband subscribers rose 16K QoQ and 41K YTD in 2QFY19, at a slower pace vs. Maxis’ 25K QoQ and 50K YTD. Also, we remain cautious on TM’s prospects from the potential impact of the National Fiberisation and Connectivity Plan (NFCP) which could further halve entry price packages next year while significantly raising the capex levels of fibre infrastructure owners.

• Against the backdrop of rising capex needs and tepid revenue growth trajectory, the stock currently trades at a fair FY20F EV/EBITDA of 5x with a decent dividend yield of 4%.

Source: AmInvest Research - 8 Nov 2019