Investment Highlights

• We maintain our HOLD call on Telekom Malaysia (TM) with an unchanged DCF-based fair value of RM4.15/share based on a WACC of 7.4% and terminal growth rate of 2%. This implies an FY20F EV/EBITDA of 5x, at parity to its 2-year average.

• Tan Sri Mohd Bakke Salleh has been appointed as TM’s new chairman effective 11 May, replacing Rosli Man, an industry veteran with 33 years of experience who has held the position since 3 December 2018.

• Bakke is currently the chairman of Federal Land Development Authority (Felda) since 1 July 2019. Prior to that, he was the acting group chief executive officer (CEO) and president of Sime Darby in July 2010 and later confirmed in the position in November 2010. Following the demerger of Sime Darby Group in November 2017, he was appointed executive deputy chairman and managing director of Sime Darby Plantation until his retirement at the end of June 2019.

• Before joining Sime Darby in July 2010, Bakke was the group managing director of Felda Holdings in 2005 and subsequently, the group president and CEO of Felda Global Ventures Holdings Bhd (FGV) in January 2009. Starting his career in Malaysia as an audit senior at Ernst & Young, he later progressed to the role of group MD and CEO of Lembaga Tabung Haji from 2001 to 2005 and served as the chairman of Bank Islam Malaysia from April 2008 to July 2010.

• While Bakke has not been involved in a telco operation with his prior years of professional experience, we are positive on his appointment.

• We also understand that the authorities have not been pressuring broadband operators to cut rates further for this year, in contrast to the National Fiberisation and Connectivity Plan which aimed to reduce entry-level packages to 1% of GNI, implying RM40/month.

• Meanwhile, Datuk Noor Kamarul, who was appointed managing director/CEO in June last year, is realigning TM’s priorities by focusing on higher income yielding sites for broadband expansion and introducing more competitive products. Operational costs are expected to continue to improve, following the 16% YoY drop to RM10bil in FY19 due to the group’s Performance Improvement Programme).

Source: AmInvest Research - 12 May 2020