We see TM’s selldown (35% YTD and 20% since the eve of GE14) as overdone, pricing in substantially the uncertainty of possible changes in the telco sector’s overall policy direction under the new PH. Values emerge as current 18.7x FY19 P/E is trading at a 14% discount against peers, supported by a strong 14% EPS FY18-20 CAGR (after a 15% drop in FY18) and a decent FY18-20 yield of 4.7%.

Irrational selldown likely overdone – cheapest domestic telco. TM share prices plunged 35% YTD and 20% since the eve of GE14 as market is pricing in a 15% fall in FY18 earnings following a weak 1Q18 results and concerns over the uncertainty of possible changes in the telco sector’s overall policy direction under the new PH. We see values in the stock as our lowered DDM-derived TP of RM4.29 still offers a total expected return of 12.4% (including 4.7% DY) and current 18.7x FY19 P/E is trading at a 14% discount against peers, supported by a strong 14% EPS FY18-20 CAGR.

Relief rebound may emerge. Although the daily chart is suggesting further consolidation, we think there could be a short term trading opportunities as the hourly chart technicals are on the mend. Short term rebound targets are RM4.26 (23 May high) and RM4.36 (23.6% FR) before hitting our LT objective at RM4.55 (30h SMA). Key supports are RM3.90, with further solid support near RM3.77 (daily lower Bollinger band). Cut loss at RM3.69.

Source: Hong Leong Investment Bank Research - 24 May 2018