We are mildly positive on TM’s move to acquire selected  Barclays Premier  League  (BPL)  live  matches  from  Astro  as  we  believe  the content will not come cheap and is unlikely to materially affect earnings in the short term. Besides competitive reasons (for Astro), TM may have chosen  to  have  limited  access  to  BPL  to  avoid  squeezing  margins already pressured by high labour costs and HSBB maintenance costs. 
 
  BPL on HyppT V . Telekom Malaysia (TM)’s wholly-owned subsidiary TM Net  SB  yesterday  announced  it  has  entered  into  a  Channel  Supply Agreement  (CSA) with  Astro Malaysia  Holdings  (ASTRO  MK;  BUY,  FV: MYR3.36)  for  the  carriage  of  two  Astro  SuperSport  Channels  on HyppTV.  The  CSA  will  allow  TM’s  broadband  subscribers,  of  both Streamyx  and  UniFi,  access  to  premium  sports  content,  including selected BPL live matches for seasons 2013/14 to 2015/16.  

  Mildly positive for TM. With the CSA, Streamyx and UniFi subscribers will be able to have access, albeit on a limited basis, to the BPL through HyppTV. This offers TM the opportunity to uplift its average revenue per user (ARPU), but this may not directly translate into earnings in the short term due to the associated content costs, which we believe will not come cheap.  

  TM to keep watch on margins. Given the high cost of the BPL content –  media  reports  indicate  Astro  having  paid  around  MYR800m  for  the rights to air the three upcoming seasons – it is not surprising that TM will have chosen to have access to only selected BPL matches. We believe TM  would  also  like  to  keep  a  watch  on  its  margins  and  is  therefore unlikely  to  spend  too  much  for  full  access  to  the  BPL  if  this  was  an option.  TM  spends  far  less  on  content  costs  (we  estimate  around MYR200m-MYR300m this year) compared to Astro (roughly MYR1.2bn).

  Investment case. We remain NEUTRAL on TM with an unchanged DCF valuation  (WACC:  8.1%,  TG:  1.5%)  of  MYR5.30.  Management  is keeping its gun powder dry on capital management prospects in view of a MYR2.1bn bond due for repayment later this year while capex remains elevated.  However,  TM’s  gearing  level  looks  comfortable,  which suggests it might refinance the borrowings and thus free up its cashflow.

Source: RHB