• TM’s 4Q17 core profits grew 9% qoq on better performance across all segments although higher input cost from the mobile business put EBITDA margin under pressure.

• 4Q17 core profits fell 18% yoy as weaker revenues for voice, data and others. Overall, FY17 core profit, which rose 1.8% yoy to RM863m, aided by lower depreciation charge and staff costs; was in-line with ours and consensus estimates.

• A second interim DPS of 12.1 sen was declared, bringing total DPS to 21.5 sen or RM808m, beating its payout policy.

• Maintain BUY with a lower DCF-derived TP of RM6.75 which implies FY18F EV/EBITDA of 8x and 28.5x PE.

Encouraging sequential growth

TM’s 4Q17 earnings recovered qoq to grow by 9%. The growth was driven by higher service revenues across all product segments (ie. voice, data, internet & others) as well as divisions (ie. unifi, TM ONE, TM GLOBAL & others). However, EBITDA margins were under pressure as this related to higher maintenance and direct costs which are mainly related to its mobile business.

Weaker yoy form

Against 4Q16, core earnings fell 18% while core EBITDA fell 6% yoy. The weaker performance due to weaker voice and data revenues. For TM ONE, management also noted that weaker revenues were due to discounts requested by its end clients.

Commendable growth on a new path

In its pursuit as the convergence champion, TM has its work cut out. FY17 revenues grew by only 0.2% while core EBITDA fell 6% to RM3.6bn. The core profit growth (+1.8%) was mainly due to lower depreciation charge which, in FY16, was inflated by accelerated depreciation and asset write off for WiMAX assets, as well as staff costs with inflated by introduction of Skim MESRA in FY16.

Unifi mobile growth

Plans are underway to ensure its convergence-themed growth are on track in FY18. With higher costs from unifi mobile, marketing spend are focused on digital platforms. The growing net adds on unifi has seen growing premium channel purchases on HyppTV. The new data centre in Iskandar and submarine cables would underpin TM ONE and TM GLOBAL’s growth going forward.

Minor tweaks

We lowered FY18/19E forecasts by 6%/7% following updated guidance and minor housekeeping of our numbers.

Maintain BUY with a slightly lower TP of RM6.75

Maintain BUY on TM with a reduced DCF-derived TP of RM6.75. We believe in TM’s convergence aspiration. With its prudent cost approach and the absence of the traditional marketing structure, we think it could capitalize on its dominant platform.

Source: BIMB Securities Research - 28 Feb 2018