Investment Highlights

• We maintain our HOLD call on Telekom Malaysia (TM) with unchanged forecasts and 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.
• TM’s unifi Mobile has cut its unlimited prepaid Internet data under its #BEBAS plan to RM35/month from RM55/month, joining the same price points initiated by Maxis last month, and followed subsequently by Axiata Group’s Celcom.
• unifi Mobile is also offering weekly unlimited Internet pass for RM12, down from RM20. However, these unlimited passes appear to be only available for LTE data which means customers may need to purchase a separate data pass in areas outside of unifi Mobile’s 4G coverage. Recall that unifi Mobile, under Webe Digital Sdn Bh (webe), has a 2G and 3G domestic roaming arrangement with Celcom.
• While both unlimited LTE passes are available until 31 December 2020, data sharing via hotspot tethering is allowed under these passes. Meanwhile, unifi’s unlimited postpaid plan has been cut to RM59/month from RM99/month under a 12- month contract.
• For now, U Mobile, unifi Mobile and Digi are the only celcos offering stand-alone unlimited postpaid data plans. The most affordable postpaid plan is still U Mobile's GX50 postpaid plan, which offers unlimited data and calls plus 5GB of hotspot sharing at a discounted RM40/month (from RM50/month).
• Digi offers its Infinite online plan with unlimited data at speeds up to 10Mbps and calls at RM100/month. For over 2 years, Maxis has bundled its Home Fibre services by offering postpaid plans with unlimited data starting at RM98/month while Celcom does not have an unlimited postpaid package currently.
• Digi's newly launched prepaid package offers 3GB of data and unlimited social media for RM15/month. Meanwhile, Celcom offers unlimited calls at RM80/month with data quota of 30GB.
• As such, we await postpaid packages being launched by Maxis and Celcom over the next few months in tandem with the escalating cellular wars which will constrain any increase in average revenue per user.
• While u Mobile’s subscriber base has risen to 1mil, this is still far behind Maxis’ 11.3mil, Digi’s 11mil and Celcom’s 8mil. While TM aims to be EBITDA positive next year, we are conservative in our forecasts given the ongoing intense mobile competition. Recall that TM’s stake in webe has recently risen to 91.8% from 72.9% with the exchange of its Green Packet’s remaining shares and convertible unsecured MTNs.
• Against the backdrop of higher capex needs and weak nearterm earnings outlook, the stock currently trades at a fair FY21F EV/EBITDA of 5x with a decent dividend yield of 3%.

Source: AmInvest Research - 28 Jul 2020