Telekom Malaysia Bhd Analysis

Bags RM3.4b Broadband Project

Stock Code 4863 (TM) Price:  RM6.98  Target Price:  RM6.92


Yesterday, Telekom Malaysia (TM) announced the acceptance of Letter of Award (LoA) from the government of Malaysia for the implementation of

High-Speed Broadband Phase 2 (HSBB 2) and Sub Urban Broadband (SUBB) project to deploy the access and domestic core networks to deliver an end-to-end HSBB infrastructure.

The investment cost for the HSBB 2 and SUBB project will be RM1.8b and RM1.6b, respectively, for a period of ten years.


The long-awaited outcome of the broadband contract award is well within our as well as the market expectations.

We understand that these contracts are the public-private partnership (PPP) arrangement between the government and TM and are likely to utilise the Universal Services Provision Fund (USP).

While the details of the contracts have yet to be ironed out, we believe the targeted coverage areas should not be far off in contrast to the previous Budget highlights.

To recap, under the 2014 Budget, the Government has allocated an investment of RM1.8b to provide additional broadband coverage and facilities in the urban  areas  and  targeted  to  benefit  2.8m households nationwide. Meanwhile, the initiative also aims to increase the Internet speed to 10 Mbps.


The group’s broadband demand is expected to remain buoyant, despite a challenging CY15 outlook as a result of the GST implementation and the rising

cost of living. The higher broadband demand is expected to be underpinned by: (i) the continuous introduction of more network convergence services, (ii) affordable broadband pricing, and (iii) raising awareness of the benefits of broadband adoption.


We leave our FY14-15E earnings unchanged for now pending the 4Q14 result release today.




Our TM target price is maintained at RM6.92, based on a targeted FY15 EV/forward EBITDA of 7.7x (+1.5x SD above its 4-year mean)

Risks to Our Call

Regulation risk and persistent margin pressure.

by Kenanga Research


The Company’s principal activity is establishment maintenance and provision of telecommunication and other related services under government licence.