Highlights

• Since the LoA acceptance on 25 Feb, TM has finally inked both agreements with the Government (Govt).

• Details of HSBB2: 1. The infra will be rolled out over a period of 10 years; 2. Total CAPEX of RM1.8bn split between Govt and TM with RM500m and RM1.3bn, respectively; 3. 95 additional exchanges to cover 390k premises by 2017 with focus on other priority economic areas including state capitals and selected major towns, including public and private tertiary education facilities; 4. Utilizing 3 main solutions: FTTH, ETTH and VDSL2; and 5. Open access concept to all licensed seekers.

• Details of SUBB: 1. Similarly, to be rolled out over 10 years; 2. Total CAPEX of RM1.6bn split between Govt and TM with RM600m and RM1.0bn, respectively; 3. To cover 420k premises by 2019 with focus on sub urban and rural areas including public and private tertiary education facilities; 4. Utilizing 3 main solutions: VDSL2, FTTH and ETTH; and 5. Upgrading existing copper lines to deliver speeds up to 20Mbps and up to 100Mbps in areas deployed with FTTH. Financial Impact

• CAPEX may be higher in FY16-17 due to HSBB2 but will not derail dividend policy. Pending clarification with TM.

Comments

• Delayed but still regard as positive development that will chart TM’s future growth.

• HSBB2 will almost double its exchange from 103 to 198 with additional 22% coverage from 1.77m to 2.16m premises.

• Cellular players including TM’s subsidiary P1 to benefit with wider fibre availability for backhaul in order to support 4G’s quality of service.

Catalyst

• Earnings uplift from HSBB and ICT-BPO.

• LTE node fiberization.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD , TP: RM6.90

Positives

• Earnings uplift mainly from HSBB, ICT-BPO, near monopoly of fixed telco market in Malaysia.

Negatives

• Unattractive pricing could limit wholesale growth. HSBB equipment subsidy.

Valuation

Reiterate HOLD with unchanged DDM-derived TP of RM6.90 based on WACC of 5.7% and TG of 0.5%.

Source: Hong Leong Investment Bank Research - 18 Dec 2015