News  Telekom Malaysia (TM) has on 27 November 2013 entered into a conditional share sale agreement with Gapurna Global Solutions S/B (GGS) to acquire the entire equity interest held by GGS in GTC Global S/B (GTC) for a cash consideration of RM45m, which will be financed via internally generated funds and targeted to be completed by the 1QFY14.

 GTC is a wholly-owned subsidiary of GGS, which in turn is a wholly-owned subsidiary of MRCB. The principal activities of GTC are in integrated security surveillance systems and related activities.

 The audited net profit for GTC for FYE 31 December 2012 stood at RM3.5m while its audited net asset was at RM44.4m.

 The proposed acquisition will complement TM’s core competencies as well as broaden its capabilities in the information and communications technology (ICT) sector to better serve its range of customers, particularly in the Enterprise and Government segments.

Comments  We welcome the proposed acquisition given it could further widen its ICT product range to cater for diverse customers’ needs.

 The proposed acquisition is fair, in our view, given that the acquisition price of RM45m represents a reasonable 1.0x net asset of GTC.

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

Forecast  We leave our FY13 and FY14 earnings forecasts unchanged for now pending the upcoming 3Q13 result release.

Rating Maintain OUTPERFORM

Valuation  Maintaining our Target Price at RM5.94 based on a targeted FY14 EV/forward EBITDA of 6.7x (+0.5 SD).

Risks to our Call Regulation risk and persistent margin pressure.

Source: Kenanga