• TM reported a seasonally weak set of results as 3Q17 core profits eased 2.2% qoq and 1.9% yoy to RM203.5m amidst weak voice and data revenue and higher operating expense.

• The 9M17 core earnings rose 11% yoy to RM641.3m mainly due to higher accelerated depreciation and WiMAX asset write off in 9M16 amounting RM141m (9M17: RM54.7m).

• Overall, TM’s 9M17 earnings trailed our estimates at 71% but was in-line with consensus at 75%. We pared down FY17/18E estimates by 4% and revisited FY19E forecasts.

• Maintain BUY with a lower DCF-derived TP of RM6.85 (from RM7.70). This implies FY18F EV/EBITDA of 8x and 28.5x PE.

Decent form

TM’s 3Q17 revenue rose 0.6% yoy as higher internet revenue (+9.4% on higher subs) were partly offset by lower voice and data revenues. EBITDA fell 6.6% yoy as operating costs rose on higher marketing, maintenance expense and direct costs (relating to unifi mobile). These were partly offset by lower depreciation charge (lower accelerated depreciation and WiMAX asset write off) which led to core profits easing 1.9% yoy.

9M17 earnings growth distorted, EBITDA down

For 9M17, core earnings were up 11% yoy but only due to higher accelerated depreciation and write off for WiMAX assets in 9M16 worth RM141m. At the EBITDA level, earnings fell 4.8% yoy on higher maintenance (relates to VADS and network maintenance).

Sequential growth on lower opex

On qoq basis, EBITDA grew 2.8% on lower direct costs and supplies and materials expenses. Nevertheless, earnings fell 2.2% qoq due to higher depreciation charge.

Unifi-ing growth

Net adds of unifi subs (+55k qoq) was the highest in 3Q17 since 3Q12, bringing total unifi subs to 1.06 million. This was largely driven by the migration of Streamyx users to unifi, raising number of unifi customers on >10Mbps package to 94% (3Q16: 75%).

Forecasts revisited

We reduced our FY17/18E earnings estimates by 4% and revisited our FY19E forecasts. The reduction accounts for the higher-than expected operating costs and easing voice and data revenues.

Maintain BUY with a lower TP of RM6.85

We lowered our DCF-derived TP to RM6.85 (from RM7.70) as we take a more conservative view on TM’s outlook. Nonetheless, we reiterate our BUY call as we believe unifi’s stable ARPU (c.RM200) coupled with its growing subs provides a good base for TM to roll out its new products such as the unifi mobile.

Source: BIMB Securities Research - 23 Nov 2017