AmInvestment retains Hold call for Telekom Malaysia

Network expansion: TM headquarters in Kuala Lumpur. The company will invest RM1.3bil and the Government an additional RM500mil under phase two of the HSBB 2 project for the purpose of planning, designing, implementing, operating and maintaining the HSBB network infrastructure and services.

KUALA LUMPUR: AmInvestment is maintaining its coverage of Telekom Malaysia (TM) with a Hold call at a discounted cashflow derived fair value of RM7.20 a share.

It said on Friday this implies an FY16F EV/EBITDA of 7.5 times, which is TM’s three-year average and half of Singapore Telecommunications Ltd’s 14 times currently. 

TM’s equity stake in P1 has risen from 55.3% to 72.9% mostly from the receipt of 11 million new P1 shares arising from the early conversion of P1’s convertible medium term notes (CMTN), of which RM623mil has been issued under P1’s CMTN programme. 

The balance equity stakes in P1 are currently held by Green Packet Berhad’s 19% and Korea’s SK Telecom Co. Ltd’s 8.2%.

“The CMTN, which would be issued over three tranches, involve a RM1.65bil programme over 16 years. There is still RM1bil of CMTN which will be issued by P1 to fund its capex.  

“Assuming SK Telecom and Green Packet do not take up their remaining P1 CMTN allocation of 25% and 15% respectively, we estimate that TM’s equity stake in P1 could eventually rise to 89%,” said the research house. 

AmInvestment said  hence, P1 has been appointed the “Mobility Centre for Excellence”, which includes TMgo broadband services. 

P1, currently offering data broadband, will target the urban population while TMgo’s focus has been on the rural segment. This forms TM’s convergence strategy in the delivery of end-to-end broadband and data services. 

“We maintain FY15F-FY17F earnings for now, notwithstanding the increased equity stake in P1, which registered a loss of RM186mil in 9MFY15. 

“The remaining capex requirements for P1 are already incorporated in our net gearing forecasts. We expect P1’s new launch of bundled products with TM’s offerings by 1H2016 to mitigate its losses, given that the group has signed a domestic roaming arrangement for 2G and 3G services with Axiata Group’s Celcom.

Last month, Celcom, TM and P1 signed a series of agreements involving TM Next-Gen Backhaul High Speed Broadband Access and domestic roaming services to leverage on each other’s existing infrastructure to speed up the convergence of their services, optimise costs and share resources. 

The agreements are for a minimum period of 5 years with an automatic renewal for another 5 years. The stock’s FY16F PE of 25  times is above its two-year average of 23 times, while dividend yields are fair at 2%-3%.