AmBank Research raises TM's fair value to RM7.10

AmBank Research raises TM's fair value to RM7.10
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KUALA LUMPUR (Jan 20): AmInvestment Bank Research has raised the fair value of Telekom Malaysia Bhd (TM) to RM7.10 from RM6.10 previously, underpinned by a lower weighted average cost of capital (WACC) assumption of 6.2% and an unchanged terminal growth rate of 2%.

In a note today, its analyst Alex Goh said the lower WACC assumption follows the reduction of its equity discount rate on the telco to 9% due to the current low interest rate environment as well as the 2.6% yield offered by Malaysian government bonds currently.

He also pointed out that the new fair value implied projected FY21 enterprise value/earnings before interest, tax, depreciation and amortisation of 7.4 times, which is 43% lower than that of competitor Maxis Bhd.

Goh noted that TM has revised its unifi Mobile offering to include cheaper unlimited data plans of only RM59/month for existing unifi Home broadband customers and RM79/month for non-unifi users from RM99/month for a limited time; meanwhile, from January to March, unifi Mobile is doubling its hotspot data to 20GB for tethering requirements and also offers a special promotion with a chance to win smartphones and e-wallet credit for this Chinese New Year season.

"While this has led to a more attractive unifi mobile offering, we highlight that rival U Mobile’s unlimited mobile plan offers a lower RM30/month with speed caps at 6mbps and 6GB of hotspot data.

"We view this new offering as a more direct competition against U Mobile’s postpaid plan currently priced at RM58/month which offers unlimited speed and calls with 10GB of hotspot data until April 30, 2021," he said.

He noted that TM offered the cellular package by unifi Mobile as part of a converged quad-play proposition with its fibre broadband.

"While unifi subscribers have reached 1.6 million in 3QFY20, management does not reveal mobile subscribers’ rate at this juncture. However, we understand that the losses from unifi Mobile, formerly webe, has substantively decreased over the past two years with the group hoping to be profitable this year.

"As such, we maintain TM’s forecasts pending a stronger sustainable earnings delivery from this segment," he said.

As at 11.12am, shares in TM rose one sen or 0.17% to RM6.01, giving it a market capitalisation of RM22.68 billion.

Lam Jian Wyn