The recently concluded collaboration (with P1 and SK Telekom) will enable TM to deliver the next generation of converged communication services in coming months. Although the group has yet to iron out the business plan, we understand that data services will be in its limelight in the 1H15 and eventually TM will offer a full suite of converged communications services using the LTE technology platform. TMGo, meanwhile, will likely evolve to be part of P1’s offering, and could further strengthen P1’s presence in the mobile broadband segment moving forward. There is no change to our FY14-FY15 earnings forecasts. We reiterate our OUTPERFORM call on TM with a higher target price of RM7.10 (from RM6.74 previously) based on higher targeted FY15 EV/forward EBITDA of 7.4x (+1.5 SD).
Successfully adding mobile element into its portfolio. The recent completion of investment agreement on Green Packet has led to TM owning 55.3% stake in P1. New P1 board members and key management have been lined-up last week where TM Group CEO, Tan Sri Zamzamzairani Mohd Isa, will serve as the chairman of P1 while the daily operation will be led by Puan Chan Cheong, who serves as the CEO and Managing Director of P1. A detailed business plan is expected to be unveiled ahead of the re-branding exercise in 1H15. Note that, P1 currently owns c.2k telco towers, of which majority are LTE-ready, and covering ~40% of population. The group currently has a total 50MHz of the 4G spectrum –30MHz on 2.3GHz and 20MHz on the 2.6GHz spectrum bands to offer full 4G services over Malaysia.
A full-fledged telco player in the making. Despite having the mobile arm, TM still needs the domestic roaming capabilities (where the group is currently in talks with other mobile incumbents) to complete the mobile ecosystem and carrying both basic voice and SMS services. The talk is expected to be conclude within months given management plans to launch the mobile services progressively with data (i.e. dongle) to be its key focusing segment in 1H15. Key targeted areas will be on the mass market with limelight focusing on either the consumer or SME segment. Moving forward, we believe TM is able to pose some threats to the mobile incumbents’ over the medium-to-long term. Nevertheless, the earnings impact is hard to gauge at this juncture, in view of the absence of P1’s business plan.
TMGo, the group’s 4G mobile broadband services, has been getting encouraging responses since first launched in early-August in both Melaka and Perlis. The group has attracted few hundred of subscribers thus far, and expects to widen its network reach to 280 sites (from 20+ currently) by year-end to other rural areas identified under the USP programme. Moving forward, we understand that TMGo will likely evolve to be part of P1’s offering, where the latter will be leasing the CDMA spectrum from TM.
Broadband demands remain buoyant, despite a challenging CY15 outlook as a result of the GST implementation and the on-going subsidy rationalisation plans. The higher broadband demand is expected to be underpinned by: (i) the continuous introduction of more network convergence services, (ii) affordable broadband pricing, and (iii) raising awareness of the benefits of broadband adoption. Strategy-wise, TM continues to believe that providing more value-added services under its current packages is the preferred strategy to lure subscribers instead of compromising on the subscription fees and margins.
Benefit from the recent equity market hiccup. The recent stock market sell-off has stimulated demand for defensive sectors/stocks. TM’s share price has surged 6.7% since September which outpaced the benchmark index return of -3.7% during the same period. Having said that, we expect TM’s share price to consolidate to around RM6.50s level (in view of the current overbought situation) in the near-term before inching higher. The group will continue benefiting from its mature but growing businesses, which is defensive in nature and less impacted by the upcoming GST implementation.
Source: Kenanga
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