• 3Q18 core earnings advanced 31% yoy and 71% qoq while 9M18 fell -18% to RM261m but came in ahead of ours and consensus estimates respectively at 86% and 91%.

• The revised dividend policy will bring more sustainability towards its business amidst challenging market.

• We maintain our forecast as we have yet to see full impact of MSAP implementation given the enforcement was initiated at end 3Q18.

• HOLD with a lower DCF-derived TP of RM2.35 on higher WACC to reflect the heightened risk to its earnings outlook.

Embarking on kitchen sinking

Headline PATAMI was severely hit by impairment on recoverable value of network assets amounting to c.RM1bn amidst continued pressure from the challenging market. Excluding this, 3Q18 core earnings advanced 31% yoy and 71% qoq to propel 9MFY18 core earnings ahead of ours and consensus estimates at 86% and 91% respectively. The improved performance was attributed to its cost optimisation under Performance Improvement Programme (PIP 2018).

Towards more sustainable dividend policy

Concurrently, it revised its dividend policy to distribute 40%-60% of its normalised PATAMI, replacing its minimum RM700m dividend commitment. We believe this would bring more sustainability to TM amidst increasing regulatory risk in its business.

Embrace for the impact

We maintain our earnings forecast as we have yet to see full quarter impact on MSAP implementation as the enforcement was at the end of 3Q18. To recap, MSAP prices have been reduced by almost half.

Maintain HOLD with DCF-derived TP of RM2.35

We maintain our HOLD call with a lower DCF-derived TP of RM2.35 (from RM3.60). Our TP reduction was on the back of higher WACC which is raised to 9.0% (from 7.5%). This is mainly to reflect higher risk to its business outlook. Sell on strength.

Source: BIMB Securities Research - 27 Nov 2018