News    TM announced that its wholly-owned subsidiary, TM Net S/B, had on 31 July 2013 entered into a Channel Supply Agreement (“CSA”) with Measat Broadcast Network S/B (“MBNS”), a wholly-owned subsidiary of Astro Malaysia Holding Berhad, for the carriage of two Astro SuperSport Channels on HyppTV. 

The CSA will provide TM broadband service customers with access to premium sports content, including selected Barclays Premier League (“BPL”) live matches for seasons in 2013/14 2014/15 and 2015/16. 

The terms of the CSA are for 3 years, beginning 1 August 2013.

In addition, the parties have also agreed to enter into an agreement for the carriage of selected NJOI channels subject to certain conditions spelled out in the CSA. 

Meanwhile, MBNS also agreed to acquire products and services from TM and/or its affiliates for the term, subject to certain conditions. 

Comments    We are positive on this development as it could further enhance TM’s HyppTV sport channel, which a variety of sport content is generally viewed as one of the key reasons for subscribers to opt for Pay TV services.  

The latest tie-up could cause Astro to lose some competitive advantage given the enhanced sport content would provide less motivation for Unifi subscribers, who contract is due for renewal, to switch to Astro’s services.  

Although the price tag of the CSA remains a trade secret, we understand that the abovementioned contents' acquisition cost forms part of TM content's budget  in FY13. Based on our earlier understanding, TM has allocated RM100m-RM120m per annum for content's acquisition.  

We understand that TM would bundle the two Astro SuperSport channels into its HyppTV Sports Pack (with a potential higher subscription fee from the current RM30/month) as well as provide a la carte service.

To date, HyppTV is Malaysia's fastest growing IPTV service, offering its customers 109 channels with 27 channels in High Definition (HD) - comprising 25 free-toair channels, including 8 radio channels, 48 premium channels, 16 Video-On-Demand (VOD) genres and 20 interactive channels.

We understand that TM will provide more colours on the CSA after the agreement signing ceremony today.  

Outlook    TM’s outlook remains solid despite escalating competition in its home broadband segment. 

Forecast   No changes in our FY13-FY14 earnings forecasts. 

Rating   Maintain OUTPERFORM

Valuation    Maintaining our Target Price at RM5.91 based on a targeted FY14 EV/forward EBITDA of 6.7x (+0.5 SD).

Risks    Regulation risk and persistent margin pressure.   

Source: Kenanga