Highlights

Under its recurrent RPT, TM Net SB, a wholly-owned subsidiary of TM has entered into a Channel Supply Agreement (CSA) with Astro Malaysia’s wholly owned subsidiary, MEASAT Broadcast Network Systems SB, for the carriage of 2 Astro SuperSport Channels on HyppTV.

The CSA will allow TM Broadband subscribers to have access to premium sports content, including selected Barclays Premier League (BPL) live matches for 3 seasons (2013/14 till 2015/16).

TM is granted 3-year non-exclusive right beginning 1 Aug 2013, to distribute both Astro SuperSport HD Channel and Astro SuperSport 2 HD Channel to HyppTV subscribers in Malaysia on a linear and pay basis via IPTV.

They have also agreed to enter into an agreement for the carriage of selected NJOI channels subject to certain conditions spelled out in the CSA.

Comments

Following the previous report, we reiterate our optimism on this new development as it may provide another solid reason for subscribers to opt for TM as the preferred tripleplay service vendor over its competitors.

Recall that TM also participated in the BPL tender last year, but Astro won the bid. However, we believe that BPL’s exclusive right is too hard for TM alone to swallow and content cost sharing is a more viable solution.

It was estimated that out of TM’s 1.3m fibre footprint / home passes, more than 1.0m homes are Astro subscribers (>76.9%).

By end of May 2013, TM recorded more than 532k UniFi subscribers and still growing steadily. Thus, there is high proportion of overlapping subscribers who have both UniFi and Astro services.

In turn, subscribers may just maintain UniFi as sole tripleplay service provider as it is : 1. More cost effective / cheaper than Astro IPTV; 2. Immune to rain fade effect; and 3. Includes telephony services.

Furthermore, TM has also extended HyppTV offerings to Streamyx subscribers (4Mbps and 8Mbps) as well as to mobile devices. This will enhance HyppTV’s reachability along with viewership, bringing down the fixed content cost as it spread among higher number of subscribers.

Catalyst

• Earnings uplift from HSBB and ICT-BPO.
• Decent dividend yield.
• Improving ROE with more efficient capital structure.

Risks

Regulatory risks, irrational competition, acceleration of global bandwidth price erosion and being a dumb pipe.

Forecasts

Maintained.

Rating

BUY, TP: RM5.82

• Positives – Earnings uplift mainly from HSBB, ICT-BPO and further cash management potential, near monopoly of fixed telco market in Malaysia.
• Negatives – Unattractive wholesale pricing could limit wholesale growth. HSBB equipment subsidy.

Valuation

• Reiterate our BUY rating on TM with unchanged DDMderived TP of RM5.82 using WACC of 5.4% and TG of 0%.

Source: Hong Leong Investment Bank Research - 1 Aug 2013