Investment Highlights

• We maintain our BUY call on Telekom Malaysia (TM) and raise our DCF-based fair value to RM7.10/share (from an earlier RM6.10/share) by lowering our WACC assumption to 6.2% from 6.7% and an unchanged terminal growth rate of 2%. This implies an FY21F EV/EBITDA of 7.4x – which is 43% below Maxis.
   
• Our lower WACC assumptions stems from the reduction of our equity discount rate to 9% from 10% given the low interest rate environment with Malaysian government bond yields at 2.6% currently.
   
• We note that the share price has risen by 58% since our upgrade to BUY on 28 August last year. In our view, TM can be re-rated even further if it opts to consolidate with mobile and fibre players (see our Sector Update on 11 August).
   
• Meanwhile, TM’s unifi Mobile has lowered its unlimited data plan to only RM59/month for existing unifi Home broadband customers and RM79/month for non-unifi users from RM99/month for a limited time.
   
• For January to March this year, unifi Mobile is doubling hotspot data to 20GB for tethering requirements. In conjunction with the Chinese New Year season, TM is also offering a special promotion with a chance to win smartphones and e-wallet credit.
   
• While this has led to a more attractive unifi mobile offering, we highlight that rival U Mobile’s unlimited mobile plan offers a lower RM30/month with speed caps at 6mbps and 6GB of hotspot data.
   
• We view this new offering as a more direct competition against U Mobile’s postpaid plan currently priced at RM58/month which offers unlimited speed and calls with 10GB of hotspot data until 30 April 2021.
   
• As TM does not view unifi Mobile as a separate service, the group offers this cellular package as part of a converged quad-play proposition together with its fibre broadband.
   
• While unifi subscribers have reached 1.6mil in 3QFY20, management does not reveal mobile subscribers’ rate at this juncture. However, we understand that the losses from unifi mobile, formerly webe, has substantively decreased over the past 2 years with the group hoping to be profitable this year.
   
• As such, we maintain TM’s forecasts pending a stronger sustainable earnings delivery from this segment.
   
• The stock currently trades at an attractive FY21F EV/EBITDA of 7x vs. Maxis’s 13x. It also offers a compelling dividend yield of 4%. TM is also ESG compliant with a 4-star rating on the FTSE4GOOD Index.

Source: AmInvest Research - 20 Jan 2021