News TM had on 21 September been served with a
Writ of Summons and Statement of Claim in respect of a suit filed by One Visa
Sdn Bhd (“OVSB”) in the Kuala Lumpur High Court.
OVSB seeks the following key reliefs against TM 1) a declaration
that TM is a trespasser on five pieces of land belonging to OVSB in Pekan Ulu
Temiang, Negeri Sembilan, by the supply of telecommunication services to the
illegal occupiers (“squatters’) on the land and is a nuisance to the plaintiff;
) special damages amounting to RM23.1m being the total rental value of the
land; 3) special damages amounting to RM198.1m being loss of opportunity and/or
loss of profit by reason of the continued wrongful occupation of the squatters
and 4) Quit rent and land assessment for the 5 pieces of land for the year 2012
amounting to a total of RM284.0k.
Comments We understand that TM is in the midst of
taking legal advice from its
solicitors with regard
to the suit
and will instruct its solicitors to vigorously defend the same.
While the total potential damage of RM221.4m claim seems
enormous at the first glance, we believe, the legal dispute may take years to
conclude. Thus, we do not impute any potential financial impact into our model
at this juncture. For illustration purpose, should the legal dispute being
concluded in FY13 we estimate that TM’s net profit could be negatively impacted
by -26.6% to RM609m under the worstcase scenario.
Outlook TM’s outlook remained solid despite
escalating competition in its home broadband segment.
Forecast No
change in our FY12-FY14 earnings forecast.
Rating Maintain OUTPERFORM
TM continues to be our top pick in the telco sector due to
its strong dividend yield, solid presence in the fibre-to-the-home market and
less competition seen in its wholesale and fixed-line segments.
Valuation Maintaining Target Price at RM6.45, based on targeted
FY13 EV/forward EBITDA of 7.6x (+2.0 SD).
Risks Higher than expected capex may affect our
FY12 dividend assumption, which we expect TM to announce another capital
initiative plan judging from the declining capex trend.
Source: Kenanga
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