- We maintain our HOLD call on TM at unchanged fair value of RM7.20/share. TM reported core net profit of RM172mil for its 1Q15. This is within our expectation but below consensus accounting for 22% and 19% of estimates respectively. 1Q15 revenue and EBITDA both accounted for 23% of our estimate.

- Core earnings were down 8% YoY and down 51% QoQ off an exceptionally strong 4Q14, which was driven by a significant increase in lumpy global & wholesale segment revenue.

- P1 contributed to an EBIT loss of ~RM50mil, and circa RM65mil (2%) to revenue. Ex-P1, TM would have registered a 3% YoY revenue growth and a narrower 8% YoY EBIT contraction. The 1Q15 EBIT loss at P1 seems to have widened vs. the RM40mil estimated EBIT loss in 4Q14, which was the maiden quarter of P1 consolidation.

- For TM, underlying margins were impacted by cost pressure due to higher direct cost (outbound traffic), higher bad debt provision, higher content cost (increase in channels and rights renewals) and timing of certain customer projects where costs were frontloaded. Operationally, ARPU for Streamyx and Unifi both fell by 1% QoQ (+3.5% and +1% YoY respectively)

- The introduction of lower broadband packages i.e. 1Mbps for RM38, is unlikely to cannibalise existing subs as this entails a data cap of 1GB/month, but there is a small cannibalization risk for the cheaper 10Mbps package, though the idea is to upsell the packages to current 5mbps subs.

- The current capex to revenue guidance of 20% does not include capex for HSBB2 and SUBB as this is still being finalised. The Government is looking at a total of 350K ports over 5 years for HSBB2 and 420K ports for SUBB (also over 5 years).

- HSBB 2 is estimated to increase TM’s HSBB connections by 21% against current total ports of 1.6mil. However, we think matching the take-up rate achieved under the 1st Phase (43%-46%) could be more challenging as HSBB 2 is more focused on secondary cities.

- FY15F guidance (which excludes HSSB 2 and SUBB) is still maintained at this point i.e. revenue and EBIT growth of 4%-4.5%, though 1Q15’s underlying EBIT contraction of 8% suggests achieving the KPIs could be a challenge.

Source: AmeSecurities Research - 1 Jun 2015