Journey to Wealth
Telekom Malaysia - Strong transmission BUY
- We re-affirm our BUY call on Telekom Malaysia (TM), with a higher DCF-derived fair value of RM5.90/share (vs. RM5.50/share previously), following the release of strong 1Q12 results.
- TM reported core earnings of RM183mil (excluding net forex gains amounting to RM67mil). This accounted for 27% of our FY12F estimates (slightly ahead of expectations) and 25% of consensus. Normalised EBITDA of RM785mil made up 24% of our full-year estimate.
- Core earnings grew by 50% YoY, though this was partly driven by a lower effective tax rate given recognition of last mile tax incentives. Normalised EBITDA growth (+8% YoY) lagged behind revenue (+11% YoY) given slight margin pressure (-1pp) on higher maintenance cost.
- Nonetheless, a positive surprise was the strong revenue growth (+11% YoY), which far exceeded FY12 KPI (+5%). Voice revenue surprisingly rebounded (+3.4% QoQ, +2.6% YoY) as subscribers migrate back to telcos from diminishing VoiP networks. Management guides for this trend to sustain in the near term.
- Unifi growth remains very strong (subs growth: +34% QoQ,). Net addition grew from 24K/month (4Q11) to 26K/month (1Q12). Maxis' aggressive price strategy in its fibre broadband offering suggests increased competition ahead. TM does not intend to compete on pricing, but rather on bandwidth offering.
- Capex post-Public-Private Partnership (PPP) phase may be reduced, given lower access capex which makes up 46% of HSBB capex (FY11) and 26% of group capex. The PPP ends in FY12 after hitting 1.3mil premises (1.2mil currently).
- We raise FY12-14F earnings by 6%-7% to reflect stronger- than-expected Unifi subscriber growth. We now assume an average 22K/month net add, which still looks conservative ' 1Q12 net add averaged 26K/month. There is further upside if TM is able to sustain ARPU at the current level of RM182.
- TM had earlier proposed a 30 sen capital repayment, due to be paid out in 3Q12. This amounts to an attractive dividend yield of 5.6% on top of the normal dividend payout which yields another 3.7%. Low net debt-to-EBITDA (0.7x) and falling HSBB capex moving forward suggest room for a further increase in dividend payout.
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
