- TM’s 1Q14 results were broadly in line with estimates. The group reported core net profit of RM185mil, which accounted for 21% of FY14F earnings and 20% of consensus.

- Normalised 1Q14 EBITDA was up by 8% YoY to RM874mil, accounting for 24% of our FY14F. This came on the back of an 8% rise in revenue, driven mainly by the Internet and data segments (+13% and +4% YoY respectively).

- Normalised net profit however, fell 21% due to higher effective tax rate (last year, TM benefitted from last mile tax incentives), on top of accelerated depreciation of RM22mil recognised in the quarter.

- Operationally, Streamyx is seeing strong migration from low to higher speed packages, with a 40% QoQ increase for the 4Mbps and 8Mbps packages combined. However, we suspect this came from a very low base hence, the minimal improvement in Streamyx’s ARPU (+1.2% QoQ to RM86).

- UniFi’s ARPU continues to rise to RM188 (+1.6% QoQ and +6% YoY). This was driven by improved take up of paid IPTV channels and VoD.

- Notably, TM changed its marketing strategy to prioritise selling IPTV packages in return for higher speeds instead of the other way around previously. Circa 90% of UniFi subs are still on 5Mbps, which suggests room for this strategy to drive speed upgrades and premium IPTV take-up.

- Management is still sticking to capex intensity guidance of 22%, but this has not factored in the rollout of HSBB 2 and we suspect there could be upside to this guidance. HSBB 2 to focus on state capital cities, and details still being ironed out. The consolidation of P1 will be a further drag to bottomline in the near term. The deal is expected to be completed 3Q14.

- Our forecasts are unchanged for now. Maintain HOLD at unchanged fair value of RM6.00/share. 

Source: AmeSecurities