While competition in the FTTH segment has intensified, TM believes
it will still be able to enjoy a healthy growth and continue to gain market
share here due to its first-mover advantage. The group is planning to respond
by adding more value-added services to its current packages instead of
compromising the subscription fee to retain its Unifi subscribers, whose 2-year
contracts are due to renewal in 2013. TM has yet to decide the level of its participation in the DTTB system given
that the RFP comprises of infrastructure and set-top boxes that vary from the
company’s initial intention, which focus merely on the infrastructure segment. The
group’s RM1.07b capital distribution plan is targeted to complete in August.
Going forward, we reiterate our view on TM for it to declare another capital
initiative plan in FY12 judging from its healthier cash flow and lower capex
trend. The downside risk on our
assumption is the additional capex required
should TM manage to seal the DTTB project. We are maintaining our OUTPERFORM
rating on TM with an unchanged target price of RM6.36, based on a targeted FY13
EV/forward EBITDA of 7.3x (+2.0x
SD).
Focus on adding
value-added services to retain Unifi subscribers. Maxis has lately
repositioned its fibre-to-the-home packages by lowering their subscription fees
with IPTV services to be likely introduced in the later stage. While TM is
aware that the competition in the home broadband segment is escalating,
management believes that it will still be able to enjoy a healthy growth and
continue to gain market share, at least in the short to mid-term due to its
first-mover advantage. Nevertheless, it plans to respond by adding more
value-added services to its current
packages instead of compromising the subscription fee. TM believes this
is the most effective way to retain its clients given there are a large group
of Unifi’s subscribers who are due to renew their 2-year contracts in 2013.
Note that TM’s total Unifi subscribers have grown to 237k in 4Q12 from 33k a
year ago. It growth momentum does not appear to be slowing with about 390k
sign-ups as of end-June vis-à-vis 316k in 1Q12.
Proposal for DTTB
system is currently under evaluation. MCMC has lately issued a request for
proposal (RFP) for the DTTB (digital
terrestrial television broadcasting (“DTTB”) system, which is a plan to convert
the current analogue broadcast system into a digital format, with submissions due
on July 25. Media news had earlier reported that the DTTB project, including
the entire infrastructure and set-top boxes, was estimated to cost RM1.0b. We
understand that TM earlier indicated that it is only interested in the
infrastructure segment with a capex allocation
of RM600m-RM700m. Nevertheless, in view that the RFP now comprises of
both infrastructure and set-top boxes, TM is still evaluating the
proposal.
Targets to complete the
capital distribution in August. TM
has filed its proposed capital repayment petition to the High Court on 27 June
with the hearing set on 13 July. Management is targeting to complete the
capital repayment plan by August should everything go according to schedule. To
recap, TM had proposed a capital repayment of approximately RM1.07b (or 30.0
sen/share) in conjunction with its 4QFY11 results through the reduction of its
par value from RM1.00 to RM0.70. Going forward, we believe, TM could continue
to reward its shareholders by tabling another capital initiative plan should
there be no additional capex required by the company. We are keeping our FY12
dividend forecast of 49.6 sen (19.6 sen annual dividend and 30.0 sen from a
capital initiative plan) unchanged.
Source: Kenanga
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