Magyar Telekom: Risky dividend play (downgraded to HOLD)

We have downgraded our rating on Magyar Telekom to HOLD from Buy, and cut our price target (PT) to HUF 491/share (from HUF 614). The stock price has appreciated by 10% in the LTM on the speculation (reported in Hungarian newspaper Vilaggazdasag) surrounding the bid on the Deutsche Telekom (DT) stake in Magyar and the dividend hike announced along with the 4Q18 results. We appreciate the dividend story (c.6% yields in 2019-21E); however, considering the frequency-related capex (HUF 50bn in 2019E, HUF 84bn in 2021E), we see no further dividend growth in the mid-term. Moreover, we see considerable market risks: 1) new convergent players emerging in Hungary; and 2) DIGI entering the mobile market this year, which creates the risk of mobile price cuts in Hungary, especially considering that prices are relatively high. SI/IT and equipment sales were stronger than expected in 2018, so we have lifted our sales and EBITDA forecasts (under the old standards), by 2.2-2.9% and 16-17%, respectively, in 2019-20E. On the other hand, due to higher capex needs, we have cut our expected 2019-20E DPS by 29-33%. Our revised forecasts imply 4.3-4.0x 2019-20E EV/EBITDAs, 25-27% discounts vs. its peers (in line with the last two-year average).