• TM’s 1QFY17 normalised PATMI of RM229.8m is within our expectation, making up 25% of our full year forecast (consensus 27%).

• YoY revenue and normalised PATMI grew by 3.8% and 13.2% respectively thanks to stronger internet demand and lower taxation while EBITDA margin remains stable.

• Total broadband subscribers remained in an uptrend.

• We maintained our FY17 and FY18 earnings forecasts respectively.

• Target price is unchanged at RM7.50. Maintain BUY.

Within expectation

TM’s 1QFY17 revenue grew by 3.8% to RM3,002.6m yoy, driven by stronger internet revenue (+8.4%) while normalised PATMI surged 13.2% to RM229.8m mainly on lower taxation (-22.8%). EBITDA margin remained stable at 32.0% vs. yoy’s 32.3% (Qoq: 30.0%).

Strong internet growth

Internet services remained as the key growth driver for TM with solid revenue growth of 8.4% yoy to RM969m driven by higher UniFi customers. Total broadband customer base increased to 2.37m, up 0.3% yoy, with UniFi continuing to see a strong growth of 11.6% yoy with 979,000 customers activated. ARPU for UniFi and streamyx remained on uptrend with a growth of 4.7% and 1.1% yoy respectively to RM201 and RM89 respectively.

CAPEX rose

TM spent RM352m for capex (11.9% of revenue) in 1QFY17 as compared to RM318m in 1QFY16 (11.1% of revenue). The higher capex spend is mainly on major projects such as High Speed Broadband (HSBB) and Sub-Urban Broadband (SUBB), which is looking forward to expanding its coverage of high quality broadband to reach more customers.

Earnings resilient moving forward

We believe TM’s earnings growth will remain resilient driven by stellar contributions from UniFi. Furthermore, the HSBB2 and SUBB projects will increase the coverage of fixed-line broadband services; hence providing a structural growth for UniFi. We maintained our FY17 and FY18 net earnings forecast at RM904m and RM942m respectively.

Valuation

Our target price is unchanged at RM7.50 from based on DCF valuation (WACC 8.9%). Maintain BUY.

Source: BIMB Securities Research - 24 May 2017