News  TM had on 21 September been served with a Writ of Summons and Statement of Claim in respect of a suit filed by One Visa Sdn Bhd ('OVSB') in the Kuala Lumpur High Court.

OVSB seeks the following key reliefs against TM 1) a declaration that TM is a trespasser on five pieces of land belonging to OVSB in Pekan Ulu Temiang, Negeri Sembilan, by the supply of telecommunication services to the illegal occupiers ('squatters') on the land and is a nuisance to the plaintiff; ) special damages amounting to RM23.1m being the total rental value of the land; 3) special damages amounting to RM198.1m being loss of opportunity and/or loss of profit by reason of the continued wrongful occupation of the squatters and 4) Quit rent and land assessment for the 5 pieces of land for the year 2012 amounting to a total of RM284.0k. 

Comments  We understand that TM is in the midst of taking legal advice  from  its  solicitors  with  regard  to  the  suit  and will instruct its solicitors to vigorously defend the same. 

While the total potential damage of RM221.4m claim seems enormous at the first glance, we believe, the legal dispute may take years to conclude. Thus, we do not impute any potential financial impact into our model at this juncture. For illustration purpose, should the legal dispute being concluded in FY13 we estimate that TM's net profit could be negatively impacted by -26.6% to RM609m under the worstcase scenario. 

Outlook  TM's outlook remained solid despite escalating competition in its home broadband segment. 

Forecast No change in our FY12-FY14 earnings forecast. 

Rating   Maintain OUTPERFORM

TM continues to be our top pick in the telco sector due to its strong dividend yield, solid presence in the fibre-to-the-home market and less competition seen in its wholesale and fixed-line segments.  

Valuation  Maintaining Target Price at RM6.45, based on targeted FY13 EV/forward EBITDA of 7.6x (+2.0 SD).

Risks  Higher than expected capex may affect our FY12 dividend assumption, which we expect TM to announce another capital initiative plan judging from the declining capex trend.