Telekom Malaysia (TM) has unveiled the details of the new broadband and mobile plans. We are NEUTRAL to slightly POSITIVE as the real challenge for the group is to maintain its network quality with growing coverage. All in, we maintain FY18-19E earnings. Reiterate our OUTPERFORM call on TM with unchanged DCF-driven target price at RM4.00.

Details of the broadband and mobile plans. TM has unveiled the details of the broadband and mobile plans yesterday following the initial broadband initiatives announced a week ago. Key details of the plans are as follows; (i) introduces affordable Unifi Basic Plan of 30Mbps at RM79/month for the B40 segment, of which household income is RM4,500 and below, with monthly data usage capped at 60GB. The plan is more than 50% lower than the current 30Mbps (which cost RM139/month) and will be available starting 15th August 2018; (ii) upgrades existing Unifi customers to speeds of up to 800Mbps or 10x higher from the current broadband speed at the same monthly subscription. For instance, 30Mbps Unifi home customer will be upgraded up to 300Mbps whilst a 100Mbps home plan subscriber will be upgraded up to 800Mbps. The ultra-lighting speed broadband will be delivered in phases beginning from year 2019 for the existing Unifi home customers or new subscribers, who sign up prior the end of the year 2018; (iii) upgrades existing 340k Streamyx customers to Unifi or double the existing speed in the non-coverage areas; and (iv) reinstates unlimited Unifi Mobile postpaid plan, exclusive for its broadband customers – both, Unifi and Streamyx customers. Note that, all the above initiatives are subject to technical availability as well as respective terms and conditions.

Neutral to slightly positive. We are NEUTRAL to slightly POSITIVE on the announced new entry-level Unifi plans as it could allow the group to attract and penetrate the largely untapped B40 segment and at the same time to provide room for upselling the Voice and Unifi TV services. Besides, while the new Unifi “turbo” plans may provide some margins pressure over the short term (as a result of the higher international bandwidth costs), the staggered stages of implementation coupled with the continued OPEX rationalization initiatives could cushion its impact. Furthermore, we believe, subscribers may likely tolerate the modem upgrade cost (if TM decides not to bear the equipment upgrade cost) given TM is set to provide free ultra-lighting speed upgrade with a same monthly subscription fee. All in, while TM appears to address the pricing and speed concern, the real challenge for the group is to maintain its network quality with growing coverage.

Maintained FY18/19E earnings forecast. While we are maintaining our FY18-19E earnings, we believe the group may likely post relatively soft numbers in 2Q18 (in view of the short-term billing hiccup post the recent cabinet reshuffling) but is expected to catch up in 2H18.

Maintain OUTPERFORM rating with unchanged DCF-driven TP of RM4.00. We believe the recent sharp share price correction on TM has been overdone, thus providing great bargain hunting opportunities from here. We reiterate our OUTPERFORM call on TM with unchanged DCF-derived target price of RM4.00 (WACC: 8.1%, TG: 1%).

Source: Kenanga Research - 13 Jul 2018