• TM’s 9MFY16 normalised PATMI of RM578m is below our’s and consensus estimate making up 68% of our full year earnings (consensus 66%).

• YTD revenue grew by 3.4% thanks to stronger internet demand, but earnings fell by 10% as a result of higher costs.

• Total UniFi subscribers remained in an uptrend.

• We revised FY16 and FY17 earnings downwards in view of higher overall expenses.

• Target price revised to RM7.70. Maintain BUY.

Below expectation. TM’s 9M16 revenue grew by 3.4% to RM8,824m driven by internet (+8%) and data revenue (+4%). Nonetheless, EBITDA was flat, at RM2,818m as a result of higher direct costs (+9%); marketing (+25%) and other operating expense (+27.8%). Its 9M normalised PATMI fell by 10% to RM578m mainly due to higher finance costs (+37%) and depreciation charges (+7%).

Decent internet growth. Internet services remained as the key growth driver for TM with decent revenue growth of 8% YTD to RM2,717m driven by higher UniFi customers. Total broadband customer base grew to 2.37m (+3.3% YoY). UniFi continues to see a healthy growth of 16% YoY with 921,000 customers activated.

Adjusting our numbers. We revised our FY16 and FY17 net earnings forecast downwards to RM801m (-7.6%) and RM932m (-8.9%) by factoring higher direct cost as a result of weakening MYR; and marketing expenses.

Valuation. Following the earnings revision, our target price is reduced to RM7.70 from RM7.90 based on DCF valuation (WACC 9.4%). Maintain BUY

Source: BIMB Securities Research - 28 Nov 2016