Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: AMMB

Telekom Malaysia Bhd (TM)
(July 27, RM3.36)
Maintain buy at RM3.33 with fair value of RM3.90: Our checks with the company reveal that UniFi has attracted over 7,000 subscribers since its launch almost five months ago. This encouraging subscriber base is achieved on the back of 18 new areas covered, from just four at the time of the launch.

We find the speed of subscriber acquisition strong, as we are looking at a high year-end target for UniFi of 20,000 subscribers.

We believe UniFi's strength is largely due to the faster-than-planned launches, which have opened up a much bigger pool of potential subscribers.

Some key areas, which we believe gained the most subscribers, are Damansara, USJ and Klang. These 18 areas ' initially targeted to be launched in 3Q2010 ' were launched a full quarter early. Next, TM is expecting to roll out services in another 16 areas, which include the high-density areas of Cheras and Petaling Jaya.

It is also indicated that TM now receives an average of 100 new orders a day, a huge push from an estimated 50 before the launch of the 18 new areas.

According to our sources, TM has been able to meet 80% to 90% of the daily installations.

To date, the total number of premises covered by UniFi has increased to at least 400,000, against the 750,000 targeted for December 2010.

The original target for UniFi was to cover at least one million households by 2011; a target we believe would easily be surpassed.

For FY2012, the guidance remains at 1.3 million premises covered.

Recall that in our FY2010 estimate, we imputed 20,000 subscribers, on a base-case scenario, by the end of this year. We had also assumed an ARPU'' (average revenue per user) of RM115 per subscriber during the period.

Although the actual pricing is RM149 (the cheapest package), we believe deviation would be compensated for by the fact that the earlier customers were given three months of rent-free promotion. Thus, we see the net impact to TM's bottom line will be insignificant.

The bigger bandwidth of UniFi allows for a greater amount of traffic within its fibre optic cables, giving TM greater manoeuvrability in terms of product offering, especially in the content-selling business.

TM is also actively seeking new business opportunities. It is on a quest to diversify from riding on the rental of its facilities.

We maintain our preference on TM for its unique buffer dividend policy. We continue to rate TM a buy with a fair value of RM3.90 per share on discounted cash flow-based valuation (terminal growth 1.5% and weighted average cost of capital 9.7%).

On dividend yield comparison, TM offers a slightly higher yield of 5.2%. This compared against 5.1% offered by DiGi.Com Bhd and 4.7% by Maxis Bhd. ' AmResearch, July 27


This article appeared in The Edge Financial Daily, July 28, 2010.