Telekom Malaysia (RM3.29; Buy; Price Target; RM3.45; T MK)

Telekom Malaysia (RM3.29; Buy; Price Target; RM3.45; T
MK)
HSBB capex guidance for 2000-2012
In an interview with The Edge (weekly) Telekom Malaysia
(TM) CEO, Zam, disclosed that capex for the HSBB (high
speed broadband) would be RM2b for FY10F, and RM1.5b-
RM1.8b for FY11F-FY12F, inclusive of the Government’s
portion. On TM’s portion alone, this works out to c. RM1b
for FY10F and RM750m-900m for FY11F-FY12F. This is
slightly higher than our earlier estimate by c. RM200m for
the cumulative period of FY10F-FY12F. Factoring these in,
our forecast NI for FY10F and FY11F falls by 1% and 4%
respectively, mainly due to higher depreciation charges.
Consequently, future HSBB capex is lowered accordingly, as
TM had budget to invest a total of RM8.9b, which is still
unchanged. Hence, our DCF-based price target is essentially
unchanged at RM3.45.
Also, TM currently has 250 customers (vs. 150 as at Dec09)
involved in beta testing the HSBB, with speed of 20Mbps.
More than 200k premises are now passed with HSBB vs.
152k as at Dec09. This would be ramped up to 300k by
month-end (Mar10). The HSBB is on track to reach 750k by
end-2010. More immediately, TM has recruited 41k
broadband subscribers in Jan10, which is its highest
monthly installations in the past 20 months, vs. 38k in
Dec09. We believe this resulted from its aggressive
marketing in 4Q09 and hence, would be looking out for
positive revenue impact in 1Q10.

With the launch of the HSBB this month, we would be
closely monitoring TM’s progress. The HSBB would start in
four areas in the Klang Valley – Taman Tun Dr Ismail,
Bangsar, Subang Jaya and Shah Alam. Among the key
issues we would be looking out for are its broadband plans
(which TM had kept confidential all this while), quality of its
video-on-demand content and quality of its HSBB
bandwidth.
As our DCF-based price target of RM3.45 is unchanged, we
reiterate our BUY call on TM. The stock offers 6% net
dividend yield, which we think is sustainable.