• TM shed some light on its product line up which is in accordance with the government’s initiative for higher broadband speeds at lower price and better reach.

• The new products, unifi basic and unifi mobile postpaid, would debut over Jul and Aug 2018 while progressive speed upgrades for existing streamyx and unifi users are from Jul and Aug 2018.

• Despite these, we view TM’s near- to mid-term outlook remains tepid amidst competitive industry landscape and constraints to invest in its convergence aspirations.

• Maintain HOLD with lower TP of RM3.60. While its convergence aspiration is an edge for TM over its peers in the long run, we believe near term earnings risks are inherent.

New products for New Malaysia

TM launched two new products – unifi basic and unifi mobile postpaid. The former is an entry-level broadband-only plan, solely for the B40 segment (ie. household income <RM4,500/mth) with speeds of up to 30Mbps and 60GB monthly data cap. Pre-registration begins in 15 Jul and services to be rolled out from Aug 2018. The unifi mobile prepaid debuted at the time of writing (ie. 12 Jul) at RM99/mth with unlimited data; it is only available to existing unifi/streamyx users, in tandem with TM’s convergence/triple play offering.

More than double the speed

For existing users, product prices remain unchanged while speeds would be upgraded by up to 10x (ie. 300-800 Mbps) for unifi users and by up to 2x (ie. 100 Mbps) for pre-unifi (ie. Streamyx) users. Effectively this more than halve the price paid per Mbps. The upgrades would be rolled out in stages from 15 Aug 2018 onwards.

Our thoughts

We are mixed on this development. The positives: TM retains product prices, limiting ARPU dilution while unifi basic broadens its reach to new segments. TM has over 2 mil broadband subs of which 1 mil are on unifi, including 800k home users. The negatives: government intervention may curtail its investment strategy to grow unifi mobile and strengthen its convergence proposition. Limited B40-area coverage could see more resources channelled to enhance connectivity albeit take up rate may be limited amidst rising living costs and competitive mobile data plans. TM recently lowered earnings and capex guidance for 2018 (Table 1).

Maintain HOLD with a lower TP of RM3.60

Maintain HOLD with a lower DCF-derived TP of RM3.60 (from RM3.90) which implies an FY18F PE of 21.9x. Our target price reduction is on the back of higher beta (1.35 from 1) ascribed to reflect inherent risk to its near- to medium-term outlook.

Source: BIMB Securities Research - 13 Jul 2018