17 May 2012
Telekom Malaysia faces no competition from 4G as it is less cost-competitive given the scarcity of spectrum - CIMB Research
(TM closing stock price yesterday (16.5.2012) was RM 5.36)
Telekom Malaysia Bhd (TM) remains an “outperform” with a higher discounted cashflow-based target price as we lower its weighted average cost of capital for its active capital management. It is one of our top picks due to its continued strong growth and positive earnings surprises.
Investors we met with were concerned about competition from 4G or long-term evolution. However, we think that wireless and fibre broadband are complementary as it is less cost-competitive given the scarcity of spectrum.
TM thinks that wireless broadband presents an opportunity to wholesale backhaul to the wireless operators.
TM is also trying to up-sell its services to maximise revenue and we do not expect any major asset disposals. We sense limited scope for special dividends in financial year ending Dec 31 as it sold all its substantial non-core assets and operational gains are unlikely to be very significant.
The only significant non-core asset that was not sold is the Multimedia University but TM is expected to hold on to this as a contribution to society.
Beyond Unifi, TM expects information, communications and technology and business process outsourcing to be its growth driver. This includes cloud computing, data centre, disaster recovery and telecommunication presence, which will be mainly targeted at the 400,000 small and medium enterprises that TM currently addresses.
It wants to add services to the infrastructure that it has built up. Meanwhile, TM is also working with 25 property developers to roll out fibre to new homes. The fibre is installed by TM-appointed installers and borne by the developer at discounted price. This will lower TM’s cost and speeds up the rollout.
The telecommunication company is looking to raise the Unifi average revenue per user. It intends to do so with special offers for its premium pay TV content, in order to bolster the take-up of paid channels. The current take-up of paid channels is less than 20%.
TM is offering RM30 per month for 30 paid channels, which cost RM3 to RM9 per channel per month. Eighty-eight per cent of its fibre broadband users are on the lowest package.
It had said that take-up had been encouraging although no actual numbers were disclosed. TM earlier launched the “Super Speed me” campaign to encourage its subscribers to upgrade to a higher plan by paying the existing rates for three months.
Any upgrades would come at no cost to TM, as it does not have to incur commissions or install new equipment except for copper broadband users upgrading to fibre. In this case, TM will bear the cost of installation but still save on dealer commissions.
TM has not ruled out any mergers and acquisitions and will consider buying local or overseas companies if there are synergies with its business or they help it to acquire the necessary skills. However, no details were revealed on its acquisition targets.