News  Business Times reported TM would be signing a multi billion undersea cable project with international telecommunications players to form a consortium for a new continental submarine cable system.

 The new submarine cable will link three continents, namely Asia, Africa and Europe and will be called South East Asia-Middle East-Western Europe 5 (SEAME-WE 5) submarine cable.

Comments  The new continental submarine cable no doubt would further strengthen TM’s backhaul as well as global connectivity. This could potentially provide an additional revenue source to its global & wholesale segment in the future. Note that, the global & wholesale segment accounted 16% of the group’s total revenue of RM10.6b in FY13.

 We understand that the SEA-ME-WE 5 submarine cable will be ready by early 2016 with spans of about 20,000 kilometres. Capex-wise, we understand that TM has included the above mentioned submarine cable capex to its current-year capex guidance, where the group expects its capex/revenue ratio to record at 20%-

22% in FY14, implying a targeted capex of RM2.23- RM2.47b.

Outlook  TM’s outlook remains solid despite the higher operating cost. Broadband take-up rate is expected to continue to grow in FY14, underpinned by its new services launched in 2013. With the expected higher take-up rate in up-scaled packages coupled with better revenue mix, management believes it can offset the current rising cost of doing business.

Forecast  We leave our earnings estimates unchanged as we see no immediate financial impact to the group.

Rating MAINTAIN OUTPERFORM

Valuation  Our TP maintained RM6.00 based on a targeted FY14 EV/forward EBITDA of 6.9x (+0.5x SD)

Risks to Our Call Regulation risk

Source: Kenanga