Highlights

Newswire reported that TM has entered into alliance with Estisalat, one of the leading telco in Middle East and Africa (MEA) on SmartHub Data Centre.

Smarthub is the largest capacity, content, internet and data hub in the MEA hosting the region’s first IPX for mobile operators and largest portfolio of internet content (Akamai, Microsoft, Yahoo! and the world's largest search and video provider). Its strategic partners include PCCW Global, China Telecom, Tata Comms, SAP, AMSix, Epsilon, Equinix, etc.

With the collaboration, TM is now able to extend its data network capabilities into Estisalat’s Global footprint such as Libya, Saudi Arabia, Pakistan, Afghanistan, Nigeria and Tanzania as well as to enhance its reachability in the region.

Leveraging on SmartHub’s facility at Fujairah Cable Landing Station, TM is able to deliver its Internetwork Packet Exchange (IPX), Internet Exchange (IX), content and high speed data services for its customers in the region.

This partnership also enables TM to connect its customers in Middle East and neighboring region via diversified routes to Europe and Asia.

Etisalat SmartHub's converged integration of multiple network infrastructure components (bundling services) provides integrated, robust and seamless connectivity with low latency. This not only enables reliable service delivery but also in line with TM's aspiration to become a preferred hub in global market.

TM shared that the range of services that can be offered include IP transit, Internet Protocol Virtual Private Network (IPVPN), Global Ethernet (GE), International Private Leased Circuit (IPLC), secured Multi-Protocol Label Switching (MPLS) networks, voice hubbing and many more.

Comments

A positive development for TM in expanding its presence and global reachability. This would further improve its global and wholesale division’s contribution which currently stands at 16% as of FY13.

According to Cisco, although MEA’s Internet traffic volume is small relative to other regions, but it will be the fastest growing region with close to 40% annual growth rate in 2017 (see Figure #1).

Catalyst

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

Risks

Appreciation of USD, regulatory risks, irrational competition and acceleration of global bandwidth price erosion.

Forecasts

Maintained.

Rating

BUY, TP: RM6.05

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 BUY call with unchanged DDM-derived fair value of RM6.05 using WACC of 5.7% and TG of 1%.

Source: Hong Leong Investment Bank Research - 5 Mar 2014