Investment Highlights

• We maintain our BUY call on Telekom Malaysia (TM) with unchanged forecasts and fair value of RM5.30/share based on FY19F EV/EBITDA of 7x, which is half of Singapore Telecommunications Ltd’s (SingTel) 14x. Our FY18F/FY19F/ FY20F earnings are 14%/11%/5% above consensus respectively.

• In the teleconference yesterday, TM’s acting group chief executive officer (CEO), Datuk Bazlan Osman, who assumed the role effective yesterday, affirmed that its former managing director/CEO Datuk Seri Mohammed Shazalli Ramly’s resignation yesterday was due to personal reasons, and was not under any investigation.

• Bazlan, who reaffirmed TM’s convergence drive to expedite the provision of quad-play services by continuing with the group’s strategic and business objectives, has been with TM as its group CFO since 2005, after becoming Celcom Axiata’s CFO in 2002. He had earlier joined Celcom Axiata Bhd in 2001 as the senior vice president (SVP), corporate finance and Treasury.

• Bazlan began his career as an auditor with a public accounting firm in 1986, then served the Sime Darby Group in various finance positions in Kuala Lumpur, Singapore and Melaka from 1989 to 1993. He subsequently worked with American Express Malaysia before joining Kumpulan FIMA in 1994, where he was subsequently appointed SVP, finance/company secretary.

• TM’s former CEO Shazalli was appointed on 1 May 2017. Prior to this role, Shazalli was the regional CEO and corporate executive vice president (EVP) for Axiata Group’s Southeast Asia operations, after being promoted from his previous position as the CEO of Celcom Axiata (Celcom), a position held from 1 September 2005 until 31 August 2016.

• Before that, Shazalli was the CEO of NTV7 for 8 years since its launch in 1998, Unilever (1987–1993) both in Malaysia and Indonesia, followed by the Malaysian Tobacco Company and British American Tobacco (1993–1996) both in Malaysia and the United Kingdom. He also served as Astro’s marketing director for 2 years where he pioneered the launch of Astro digital satellite services in Malaysia.

• Recall that recruitment rates for new unifi customers continue to grow, rising 5% QoQ and 20% YoY to 1.2mil in 1QFY18. However, Streamyx shrank by 6% QoQ and 19% YoY to 1.1mil due to migration to unifi and other fixed and wireless broadband providers. Meanwhile, unifi ARPUs slid sequentially by RM3/month QoQ to RM194/month as TM positions to accommodate the government’s drive to “double the speed for half the price”.

• The stock currently trades at an attractive FY18F EV/EBITDA of 5.6x, 0.4x SingTel’s 14x. We continue to expect the group’s convergence strategy to offer quad-play services to eventually lead the path towards sector consolidation as the need for a potential re-merger with Axiata Group is re-accentuated by its weak 1QFY18 results.

Source: AmInvest Research - 7 Jun 2018