Following the Malaysian Communications and Multimedia Commission’s (MCMC) decision to regulate prices for broadband access from 8 June, Macquarie Equities Research (MQ Research) analysed the potential pricing pressure on Telekom Malaysia (TM) and the impact of a lower network roll-out cost, in its report released yesterday (5 Jul). MQ Research reiterates its outperform call on TM with the same target price of RM5.40.
Event
MQ Research analysed the regulated prices for broadband access as announced by the MCMC which took affect 8 June and conclude that the pricing pressure in retail broadband, while existent, is limited, based on TM’s recently outlined new price plans. They believe that over time, lower roll-out costs from better procurement exercises will help the nation see lower broadband costs, while fixed wireless broadband will help raise rural broadband penetration. Meanwhile, TM’s shares at 6.5x EV-to-trough EBITDA (19E) offer good value with an attractive 5.3% dividend yield.
Impact
Wholesale discount not as significant as market fears. MQ Research analysed the MCMC’s Review of Access Pricing document dated 20 December 2017 and concluded that the price differential between wholesale costs and TM’s proposed new price plans are not significant enough to create intense price competition. By their estimates, the cost of a wholesale line to an access seeker is RM92/month and RM136/month for 30Mbps and 100Mbps service, respectively. This compares with TM’s proposed
Earnings and Target Price Revision
No change.
Price Catalyst
12-month price target: RM5.40 based on a discounted cash flow (DCF) methodology.
Catalyst: Proof of costs controls and improved cash flows in coming quarters.
Action and Recommendation
Outperform reiterated.
Source: Macquarie Research - 6 Jul 2018
http://klse.i3investor.com/blogs/kltrader/164240.jsp
