News Telekom Malaysia (TM) has inked a RM1.057b (or RM70.47m/year) framework agreement with MYTV Broadcasting S/B (MTVB), a wholly owned subsidiary of Puncak Semangat S/B, to provide digital terrestrial television (DTT) services over 15 years.
The framework is to govern the general principal terms for the subscription of various telecommunication services and solutions for the DTT services by MTVB from TM, inclusive data services, access services, managed services, broadcast services, ICT and BPO as well as infrastructure services.
The subscription of DTT services from TM shall allow MTVB, which owns the license to operate the infrastructure and network facilities for DTT in Malaysia, to realise the migration of analogue terrestrial broadcasting to digital throughout the country by 2016.
Comments The award is not a surprise to us as we had previously highlighted in our Media sector update report dated 24 October 2013 that TM could be one of the beneficiaries in view of its extensive and wide coverage of transmission sites in the country.
While management refuses to elaborate the targeted margin on this contract, we believe the margin could be relatively thinner due to the national interest angle.
For illustration purpose, assuming a 20% PBT margin, the contract is expected to contribute an additional RM14.1m profit (or 1.1%) to the group’s FY15 PBT, which is negligible in our view.
Outlook The group’s broadband demand is expected to remain buoyant, despite a challenging CY15 outlook as a result of the GST implementation and the ongoing 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, we understand that TM will continue to provide more value-added services under its current packages instead of compromising on the subscription fees and margins.
Forecast We leave our FY14-FY15 earnings forecasts unchanged for now pending the upcoming 3Q14 result release on 26th Nov.
Rating Our OUTPERFORM call is currently under review.
Valuation TP is also under review pending the upcoming result. Our last TP is at RM7.10, based on a targeted FY15 EV/forward EBITDA of 7.4x (+1.5x SD above its 4-year mean)
Risks to Our Call Regulation and currency risks in its overseas ventures
Source: Kenanga
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