Highlights 

In  its  exchange  filing,  TM  announced  the  agreement  with MYTV  Broadcasting  SB  for  the  provision  of  Digital  Terrestrial Television  (DTT)  infrastructure,  network  facilities  and  related services  in Malaysia.

Broadcast Service  Agreement  consisting of:

• Terrestrial  Distribution Network  Services;
• Satellite Distribution  Network Services;
• Broadcast Contribution  Network  Services;
• Station Facilities and Infrastructure  Services;  and
• Operation  and Maintenance  Services

Service  Agreements  include:

• Satellite Transponder;
• IPVPN  Services  for  Call  Centre,  Customer  Interaction

Centre  and  Content  Applications  Service  Provider  Video Contribution;

• BPO for Contact Centre; and
• Akamai Content  Delivery  Network.

The  pack  is  for  a  period  of  15  years  with  an  annual  contract value  of RM70.5m.

This  framework  agreement  governs  various  services  including data,  access,  managed  services,  broadcast,  ICT,  BPO  and infrastructure.

Comments 

A  much  anticipated  positive  development   as  TM  continues  to monetize  its  widely  distributed  fibre  backhaul  network   while promoting  government’s  call  to  share  and  avoid  duplication  in infrastructure.

Besides  that,  this  one-stop  solution  covers  50  transmission sites  as  well  as  data  warehousing  located  in  Cyberjaya  data centre.

Catalyst 

• Earnings uplift from  HSBB and ICT -BPO.
• LTE node  fiberization.

Risks  

• Prolonged  drag  by  P1,  appreciation  of  USD,  regulatory  risks, irrational  competition  and  acceleration  of  global  bandwidth price erosion.

Rating

DTTB Deal

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

Valuation

• Reiterate  HOLD  after  raising  our  DDM-derived  fair  value  by 13.6%  from  RM6.05  to  RM6.87  as  we  roll  forward  our
• Valuation to  FY16  based  on  WACC  of  5.7%  and  TG  of  0.5% (previously  WACC of 5.7% and TG of 1%).

Source: Hong Leong Investment Bank Research - 19 Nov 2014