Results

FY13 revenue of RM10.6bn was translated into a stellar core net profit of RM1.04bn on the back of superior margin. This set of results exceed expectations or outpacing HLIB and consensus’ full year estimate by 24% and 15% respectively. Deviation 

Stronger-than-expected margins as a results of economies of scale and fruitful cost rationalization.

Dividend

Recommending a final dividend of 16.3 sen per share (4Q12: 12.2 sen) subject to shareholders’ approval. YTD dividend amounted to 26.1 sen (FY12: 22 sen) topping ours and streets’ expectations.

Highlights

TM met all FY13 headline KPIs with flying colors, notably overachieving the EBIT growth KPI by 15.2-ppt.

Data and Internet remained as main revenue drivers which expanded 6.2% and 13.2% yoy respectively in 4Q13, propelling FY13 to gain in similar magnitude of 13.9% and 12.8% yoy respectively.

UniFi base added at a slower pace of 28k subs qoq to 635k subs in 4Q13 as market matures with 43% penetration on the back of 1.49 premise-pass. To-date, the base continues to expand reaching more than 650k. ARPU expanded by RM2 qoq to RM185, partly implying good take-up rate of HyppTV with high value packages.

Streamyx ARPU also expanded RM2 qoq to RM85 as more than 41% of broadband customers are on 4Mbps and above. Catalyst

Earnings uplift from HSBB and ICT-BPO.

Improving ROE with more efficient capital structure.

Risks

Appreciation of USD, regulatory risks, irrational competition and acceleration of global bandwidth price erosion.

Forecasts

Tweaked model based on deviations mentioned above and guidance as well as rolled over our model. Thus, FY14-15 EPS was lifted by 13.3% and 4.2% respectively.

Rating

BUY, TP: RM6.05

Positives – Earnings uplift mainly from HSBB, ICT-BPO and further cash management potential, near monopoly of fixed telco market in Malaysia.

Negatives – Unattractive wholesale pricing could limit wholesale growth. HSBB equipment subsidy.

Valuation

Reiterate BUY call after raising our DDM-derived TP by 4.0% from RM5.82 to RM6.05 using WACC of 5.7% and TG of 1% (previously WACC of 5.4% and TG of 0%), reflecting our upward EPS revision.

Source: Hong Leong Investment Bank Research - 28 Feb 2014