TM awarded a contract to Celcom Axiata for the provision of 4G MOCN services; we expect this arrangement to lead to cost savings and lower capex. Separately, YB Gobind Singh has indicated that there will not be further reductions in high-speed broadband prices in 2019. We have pencilled in a 30% cut in Streamyx prices and flat Unifi package price. Streamyx prices, if sustained at current level, would lift our 2019-20E EPS forecasts by c.15% and DCF-derived fair value by 10%. TM will release its 2018 results next Tuesday (26th February 2019). We maintain our forecasts and rating for now, pending clarification from management.

TM Awards a Contract to Celcom Axiata for the Provision of 4G MOCN

TM announced that the group has awarded a contract to Celcom Axiata Berhad (Celcom) for the provision of 4G Multi Operator Core Network services (4G MOCN) to webe digital Sdn Bhd (webe), a 72.9-% owned subsidiary of TM. The 4G MOCN is an alternative network sharing technology which complements the existing 2G and / or 3G Domestic Roaming services arrangement through an agreement which was entered into between TM, webe and Celcom on 28 January 2016. The provision of 4G MOCN will improve the network coverage of webe services, while webe continues to expand its current LTE network coverage.

No More Reduction in Broadband Price – Gobind Singh

Separately, Communications and Multimedia Minister Gobind Singh Deo has indicated there will not be any further reductions in high-speed broadband prices in 2019 given they were reduced “quite substantially” last year, reported The Edge Financial Daily.

We Are Positive on Both News Flow

We are positive on both news flow: (i) TM has invested substantial capex and booked in significant pretax losses from webe during 2016-17 (2016: - RM682m, 2017: -RM799m). We believe the TM-Celcom’s 4G MOCN arrangement should lower its operating costs and capex; and (ii) Gobind’s statement should calm investor. Whilst we are not expecting further cut in Unifi prices, we have pencilled in a 30% reduction in Streamyx package prices. Streamyx prices, if sustained at current level, would lift our 2019- 20E EPS forecasts by c.15% and DCF-derived fair value by 10%. We maintain our earnings forecasts, SELL rating and TP of RM2.30 for now, pending further clarification during TM’s results briefing next Tuesday (26th February 2019).

Source: Affin Hwang Research - 22 Feb 2019