TM’s investment deal in P1 turns unconditional

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Telekom Malaysia Bhd
(Sept 26, RM6.52)
Maintain “underperform” with target price of RM5.78:
Telekom Malaysia Bhd (TM) will initially invest RM350 million in Packet One Networks (P1) through subscription of new ordinary shares to make it the major shareholder with an estimated 57% stake, while Green Packet Bhd (GP) and SK Telecom (SKT) will hold around 30% and 13%, respectively. The RM350 million proceeds will be used by P1 to settle certain debts and trade payables, and for working capital purposes.

Pursuant to the above, TM will also enter into the following agreements: (i) to subscribe to an eight-year exchangeable bond programme issued by GP to raise up to RM210 million (initial tranche of RM120 million and subsequent tranches up to RM90 million); and (ii) to subscribe to 60% of an eight-year convertible bond programme by P1 to raise RM1.65 billion. The remaining 25% and 15% will be taken by SKT and GP, respectively.

We reiterate our “underperform” call on TM with an unchanged discounted cash flow-derived target price of RM5.78. Our call is premised on: (i) at the current share price, TM is trading at forward (FY15) price earnings of 25.3 times and enterprise value/earnings before interest tax depreciation and amortisation of 7.1 times which is at the top end of its historical trading range; and (ii) we believe TM’s recent share price increase has overrated its push into wireless businesss through P1 acquisition. — Public Investment Bank, Sept 26

Telekom

This article first appeared in The Edge Financial Daily, on September 29, 2014.