TM seals deal with TIME for construction, maintenance of SKR1M

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KUALA LUMPUR (Aug 27): Telekom Malaysia Bhd (TM) inked a 20-year construction and maintenance agreement (CMA) with TIMEdotCom Bhd’s unit TT dotCom Sdn Bhd (TTdC) today for the development and construction of a new submarine cable system, ‘Sistem Kabel Rakyat 1 Malaysia’(SKR1M).

The new submarine cable system is part of the government’s initiatives to increase the capacity of high-speed broadband, as outlined in Budget 2014 and 2015.
Under the agreement, TM and TTdC will cooperate with each other to provide, construct, operate and maintain SKR1M cable system.

The cooperation will also extend to “rules which shall govern the investment principles, voting rights, use of capacity, operation and maintenance obligations, as well as the implementation and management of SKR1M”, said TM in its filing to Bursa Malaysia today.

The capital expenditure (capex) to construct the SKR1M cable system will be shared based on the ownership interest of the respective parties, estimated to be 83.63% for TM and 16.37% for TTdC, according to TM’s filing on Bursa Malaysia.

That means upgrade, operation and maintenance costs will be shared based on ownership interest or utilisation, as deemed appropriate by the parties.

“There is no element of profit sharing and all transactions between the parties will be on a cost reimbursement basis,” said TM. The capex will be funded from internally-generated funds, it added.

“TM and TTdC will also commit to operate and maintain the SKR1M network for the lifetime of the cable system, including funding the cable fault repairs, so as to ensure that there will be no service disruptions,” said TM.

The partnership may expire earlier, if the SKR1M is retired. The agreement was inked, following the memorandum of understanding (MoU) entered into between the two parties on March 3 this year.
TM said the agreement will not affect its issued and paid-up share capital, substantial shareholders’ shareholdings of TM, nor its earnings and net assets of the group for the financial year ending Dec 31, 2015 (FY15).

It is, however, expected to contribute positively to the future earnings of TM, which share a common major shareholder with TIME in Khazanah Nasional Bhd.

TM (fundamental: 0.8; valuation: 1.1) closed 2 sen or 0.31% higher at RM6.50 today, for a market capitalisation of RM24.35 billion.

TIME dotCom (fundamental: 3; valuation:2.4) also closed 27 sen or 4.77% higher at RM5.93, with a market capitalisation of RM3.26 billion.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)