- We maintain our HOLD call on TM and raise our fair value to RM5.80/share (from RM5.40/share previously). TM’s 4Q13 results were above expectations, though this was mainly driven by HSBB tax incentives. EBITDA and pre-tax accounted for 101% and 96% of our FY13F projection. TM reported net profit of RM290mil for 4Q13, which brought FY13 earnings to RM1.04bil, accounting for 108% of our full year estimate.

- Unifi ARPUs are progressively improving on better take-up of HyppTV packages – sports packages introduced in Aug 2013, while Streamyx ARPU is also improving (see Chart 1) due to up-selling of higher speed packages following the introduction of 4Mbps and 8Mbps Streamyx packages since July 2013. We estimate 17% of total Streamyx subs are on >4Mbps packages and 41% of total broadband subs (including Unifi).

- FY14 revenue and EBIT growth guidance of 5% surprised on the upside vs. our earlier forecast of a 3% growth. The group expects to be more aggressive on content sales (HyppTV) and up-selling subs to higher packages. Margins are likely to remain stable this year as higher content cost has been partly reflected in 2H13 and will be offset by higher take-up of channels.

- We raise FY14-15F projections by 10%-11% to factor in stronger broadband growth (mainly stronger ARPUs, and stable margins), although net profit is expected to fall in FY14F due to normalising tax rates - HSBB tax incentives has been exhausted in FY13.

- Capex intensity is expected to rise to 20%-22% of revenue from 18% of revenue in FY13. Last year’s capex intensity was exceptionally low due to deferment of certain customer projects and lower requirements for its ICT-BPO and IPTV requirements.

- Initial year of HSB2 will see capex increase; guidance has not factored in HSBB 2 project yet. Given that initial cost will kick in before incremental revenue is generated, we think that earnings could see downward pressure initially, before turning around strongly in the following year as economies of scale kicks in. The initial cost pressure is a risk to our current FY14F projection but is probably an upside risk to FY15-16F. Management is still in talks with the government currently.

- Maxis’ intention to renegotiate HSBB wholesale terms with TM is also a risk. TM’s management clarified that it will only negotiate if TM also benefits from any changes in arrangements. If the situation remains status quo, we think there is risk of Maxis pulling out of the deal. But on the bright side, this would provide an opportunity for Unifi to take over the existing customers. Celcom has yet to launch its fibre services despite having a wholesale arrangement with TM.

Source: AmeSecurities