TELECOMMUNICATION

TELEKOM MALAYSIA
(T MK EQUITY, TLMM.KL) 1 Oct 2019

Up to 3-month free Unifi for new subscribers

Company report HOLD
Alex Goh (Maintained)
alexgoh@ambankgroup.com
03-2036 2280 Rationale for report: Company update

Investment Highlights
Price RM3.60
Fair Value RM3.50
52-week High/Low RM4.68/RM2.11  We maintain our HOLD call on Telekom Malaysia (TM) with
unchanged forecasts and DCF-based fair value of
Key Changes RM3.50/share based on a WACC of 7.3% and terminal growth
Fair value  rate of 1%. This implies an FY20F EV/EBITDA of 5x.
EPS 
 TM has introduced a new #khabarbaik promotion for its Unifi
YE to Dec FY18 FY19F FY20F FY21F Home fibre broadband service wherein new subscribers will
not need to pay monthly subscription until 31 December
Revenue (RM mil) 11,819.3 11,373.2 11,404.1 11,490.0 2019. This means that new subscribers will enjoy free fibre
Core net profit (RM mil) 632.4 979.0 981.5 994.5
16.8 26.1 26.1 26.5
broadband services for up to 3 months vs. one month that
FD Core EPS (sen)
FD Core EPS growth (%) (26.7) 54.8 0.3 1.3 had been offered earlier.
Consensus Net Profit (RM mil) - 919.6 903.8 894.0
DPS (sen) 2.0 14.0 14.5 15.0  This promotion will be applicable for any TM Unifi fibre
PE (x) 21.4 13.8 13.8 13.6 broadband plan which is tied to a 2-year contract. This
EV/EBITDA (x) 6.0 5.4 5.0 4.6 promotion will also be available for existing users with
Div yield (%) 0.6 4.0 4.1 4.3 expiring contracts in the next 3 months.
ROE (%) 2.0 12.5 12.0 11.8
Net Gearing (%) 76.3 87.4 73.3 59.3  There is also a lucky draw incentive to apply for Unifi Home
plans between 1 October and 30 November 2019 via online
Stock and Financial Data
application as a daily winner could win free internet for 12
additional months, starting January 2020 to December 2020.
Shares Outstanding (million) 3,758.0
Market Cap (RM mil) 13,528.8
Book Value (RM/share) 2.00  Currently, TM’s entry level plan at 30Mbps plan is priced at
P/BV (x) 1.8 RM79/month with a quota of 60GB. This can be topped up
ROE (%) 2.0 with RM20/month for unlimited calls. TM has also introduced
Net Gearing (%) 76.3 an unlimited quota plan at 30Mbps for RM89/month.
Major Shareholders Khazanah (26.2%)  Assuming average revenue per user at RM100/month over 24
EPF (16.1%) months for its existing customers of 1.3mil, we estimate that
ASB (11.8%)
TM’s FY19F earnings will only be marginally eroded by 1%.
Free Float 30.0
Avg Daily Value (RM mil) 31.1
 We are neutral on this development as TM appears to be
Price performance 3mth 6mth 12mth stepping up its promotional efforts to drive new Unifi
subscription rates which have lagged Maxis’ this year. In
Absolute (%) (10.0) 12.5 11.8 2QFY19, TM’s new fibre broadband subcribers rose 16K QoQ
Relative (%) (5.0) 16.7 26.6 and 41K YTD vs. Maxis’ 25K QoQ and 50K YTD.

9.0 2,000  We remain cautious on TM from the impact of the National

8.0 1,800 Fiberisation and Connectivity Plan (NFCP) which could halve
1,600 entry price packages next year while significantly raising the
7.0
1,400 capex levels of fibre infrastructure owners.
6.0
1,200
5.0
1,000
 Given TM's role as the national broadband provider, the
4.0 group could bear almost half of the RM22bil NFCP cost
800
3.0 notwithstanding the involvement of other operators and their
600
2.0
existing capex programmes. Besides TM's own capex
400
requirements, the NFCP rollout alone could translate to 19%
1.0 200
of its FY20F revenue - already above management's FY19F
0.0 0
Oct-14 Oct-15 Oct-16 Oct-17 Oct-18
capex target of 18% and 8% in 1HFY19. Additionally, the
thrust of the NFCP towards connecting the rural population
T MK FBMKLCI Index
could mean that revenue accretion from these investments
will be minimal.

 Against the backdrop of rising capex needs and tepid

revenue growth trajectory, the stock currently trades at a fair
FY20F EV/EBITDA of 5x with a decent dividend yield of 4%.
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Jan-15
Apr-15
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Telekom Malaysia

Apr-16
Jul-16
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Apr-17

AmInvestment Bank Bhd

Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
EXHIBIT 1: PB BAND CHART

Oct-18
Jan-19
Apr-19
Jul-19
-1δ
Avg
+1δ

0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00

Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
EXHIBIT 2: PE BAND CHART

Jul-18
Oct-18
Jan-19
Apr-19
Jul-19
Avg
+1δ

-1δ
1 Oct 2019

2
Telekom Malaysia 1 Oct 2019

EXHIBIT 3: FINANCIAL DATA

Income Statement (RMmil, YE 31 Dec) FY17 FY18 FY19F FY20F FY21F

Revenue 12,085.1 11,819.3 11,373.2 11,404.1 11,490.0

EBITDA 3,692.9 3,193.6 3,832.2 3,908.3 4,001.9
Depreciation/Amortisation (2,483.7) (2,370.2) (2,345.1) (2,417.0) (2,489.3)
Operating income (EBIT) 1,209.2 823.4 1,487.2 1,491.3 1,512.6
Other income & associates 27.6 21.0 22.1 23.2 24.3
Net interest (255.3) (347.8) (278.8) (294.0) (311.0)
Exceptional items 66.5 (479.2) - - -
Pretax profit 1,048.0 17.4 1,230.4 1,220.5 1,225.9
Taxation (317.5) (277.9) (430.6) (427.2) (429.1)
Minorities/pref dividends 199.2 413.7 179.3 188.2 197.7
Net profit 929.7 153.2 979.0 981.5 994.5
Core net profit 863.2 632.4 979.0 981.5 994.5

Balance Sheet (RMmil, YE 31 Dec) FY17 FY18 FY19F FY20F FY21F

Fixed assets 16,540.7 15,263.3 15,290.7 14,244.7 13,121.4

Intangible assets 538.6 490.0 490.0 490.0 490.0
Other long-term assets 1,549.4 1,548.4 1,581.6 1,615.6 1,650.3
Total non-current assets 18,628.7 17,301.7 17,362.3 16,350.2 15,261.8
Cash & equivalent 1,719.8 2,826.3 708.2 1,690.6 2,737.2
Stock 258.5 134.6 249.3 250.0 251.8
Trade debtors 3,710.2 2,405.2 3,957.3 3,968.0 3,997.9
Other current assets 444.6 1,036.7 1,057.4 1,078.6 1,100.2
Total current assets 6,133.1 6,402.8 5,972.2 6,987.2 8,087.1
Trade creditors 3,934.2 3,610.3 3,739.1 3,749.3 3,777.5
Short-term borrowings 1,119.0 234.1 245.8 258.1 271.0
Other current liabilities 1,229.6 1,353.7 1,353.1 1,379.8 1,407.1
Total current liabilities 6,282.8 5,198.1 5,338.1 5,387.2 5,455.6
Long-term borrowings 7,031.2 8,337.2 7,535.0 7,535.0 7,535.0
Other long-term liabilities 3,681.0 3,153.7 3,040.9 2,943.5 2,860.2
Total long-term liabilities 10,712.2 11,490.9 10,575.9 10,478.5 10,395.2
Shareholders’ funds 7,843.5 7,525.2 8,090.2 8,329.6 8,553.7
Minority interests (76.7) (509.7) (669.7) (857.9) (1,055.6)
BV/share (RM) 2.09 2.00 2.15 2.22 2.28

Cash Flow (RMmil, YE 31 Dec) FY17 FY18 FY19F FY20F FY21F

Pretax profit 1,048.0 17.4 1,230.4 1,220.5 1,225.9

Depreciation/Amortisation 2,483.7 2,370.2 2,345.1 2,417.0 2,489.3
Net change in working capital (0.7) (121.5) 18.3 (1.3) (3.5)
Others (641.5) 1,042.7 (2,377.1) (142.3) (163.7)
Cash flow from operations 2,889.5 3,308.8 1,216.7 3,493.9 3,548.0
Capital expenditure (3,625.5) (2,363.9) (2,047.2) (2,052.7) (2,068.2)
Net investments & sale of fixed assets - - - - -
Others 293.4 (153.3) (45.7) (45.5) (48.6)
Cash flow from investing (3,332.1) (2,517.2) (2,092.8) (2,098.2) (2,116.8)
Debt raised/(repaid) (213.1) 421.1 (790.5) 12.3 12.9
Equity raised/(repaid) - - - - -
Dividends paid (808.0) (75.2) (526.1) (544.9) (563.7)
Others (225.5) (705.7) (460.9) (445.5) (431.6)
Cash flow from financing (1,246.6) (359.8) (1,777.5) (978.1) (982.4)
Net cash flow (1,689.2) 431.9 (2,653.6) 417.6 448.9
Net cash/(debt) b/f 2,953.6 1,740.8 2,848.4 731.4 1,714.9
Net cash/(debt) c/f 1,264.4 2,172.7 194.7 1,148.9 2,163.8

Key Ratios (YE 31 Dec) FY17 FY18 FY19F FY20F FY21F

Revenue growth (%) 0.2 (2.2) (3.8) 0.3 0.8

EBITDA growth (%) (3.7) (13.5) 20.0 2.0 2.4
Pretax margin (%) 8.7 0.1 10.8 10.7 10.7
Net profit margin (%) 7.7 1.3 8.6 8.6 8.7
Interest cover (x) 4.7 2.4 5.3 5.1 4.9
Effective tax rate (%) 30.3 1,597.1 35.0 35.0 35.0
Dividend payout (%) 86.9 49.1 53.7 55.5 56.7
Debtors turnover (days) 104 94 102 127 127
Stock turnover (days) 7 6 6 8 8
Creditors turnover (days) 121 116 118 120 120

Source: Company, AmInvestment Bank Bhd estimates

AmInvestment Bank Bhd 3

Telekom Malaysia 1 Oct 2019

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AmInvestment Bank Bhd 4