We downgrade TM to SELL (from HOLD) with an unchanged TP of RM2.30 in view of: (i) higher downside risk to its share price after a 13% rally since our latest results note was published in November 2018; and (ii) possible emergence of new competitors in the broadband space. Tenaga announced today the roll-out of its National Fiberisation and Connectivity Plan (NFCP) pilot project in Jasin, Melaka. Several internet providers will offer packages to Jasin residents, including Astro, Celcom, City Broadband, Digi, Maxis and Time. This signals a likely spike in competition in the broadband market. At a 20x 2019E PER, TM’s valuation looks pricey, considering its challenging business outlook.

Tenaga Rolls Out Its NFCP Pilot Project

Tenaga (TNB MK, RM13.64, BUY, TP: RM18.00) has today rolled out its NFCP pilot project in Jasin, Melaka. Tenaga has about 12,000km of fibreoptic cables across the country and the group in September 2018 started a pilot project in Jasin to assess the technical, safety and commercial viability of using its infrastructure for the government’s NFCP plan to allow faster, cheaper and wider internet accessibility. Tenaga had in December 2018 said That the Pilot Project, Technically, Has Been Very Successful.

Notable Participants in Pilot Project: City Broadband, Digi and Astro

Under the pilot project, several internet providers will offer packages to residents in Jasin, including Astro, Celcom, City Broadband, Digi and Maxis. Maxis and Celcom are the familiar names in the broadband space while the presence of Astro, Digi and City Broadband are noteworthy.

- The Edge reported that Astro (ASTRO MK, RM1.42, BUY, TP: RM1.77) has started a pilot project in Jasin, offering bundled broadband internet with Astro’s Family Pack at RM99/month (50Mbps) and RM129/month (100Mbps) starting February 2019. The Astro’s Family Pack content offering includes channels like Astro Ria, Astro Prima and NatGeo WILD, among others. The new package is priced at a 23% discount to the existing 30Mbps Astro-Maxis IPTV package.

- A reputable blog on Malaysia telcos, soyacincau, reported that Digi (DIGI MK, RM4.44, HOLD, TP: RM4.38) is offering broadband packages at RM95/month (50Mbps) and RM129/month (100Mbps).

- City Broadband, a wholly-owned subsidiary of TNB, offers competitive packages ranging from RM79/month (50Mbps) to RM199/month (1Gbps). City Broadband is a relatively new entrant to the broadband space and is currently focused in Cyberjaya.

Source: Affin Hwang Research - 9 Jan 2019