Results

1H14 revenue of RM5.4bn was translated into a core net profit of RM407.4m on the back of sustained margin. This is within expectations, accounting for 46% and 45% of HLIB and consensus full year forecasts, respectively (1H13 core net profit of RM478.5m accounted for 46.1% of FY13).

Deviation

In line.

Dividend

As expected, declared an interim single-tier dividend of 9.5 sen (2Q13: 9.8 sen) per share.

Highlights

YTD turnover expanded healthily by 8.0% yoy as internet, data and other revenues grew by 13.3%, 5.0% and 29.1%, respectively, while voice fell by 2.5%. Sequentially, sales strengthened by 7.7% qoq as all product segments grew: voice +2.2%, internet +0.1%, data +6.4% and other revenue +34.5%.

UniFi base added at a slower pace of 20k subs to 673k subs in 2Q14 due to market maturity coupled with the usual database cleanup / force churn. This implied a 43.7% take-up on the back of 1.54m premise-pass over 105 exchanges. ARPU was healthy at RM187, still implying good take-up rate of HyppTV with high value packages.

Streamyx base stagnated since 2Q13 with ~RM1.58 subs at consistent mix of residential to business ratio of 82:18. ARPU was also stable at RM85.

Stayed tight-lipped on HSBB 2 as it is still under discussion with government more on administrative issues.

Based on the current run rate, TM revised down FY14 CAPEX guidance to 20% (vs. 22% previously) of sales.

Refreshed CDMA with LTE over 850MHz with the brand name of TMgo serving Kedah and Melaka under USP obligation. Plan to launch 280 sites nationwide by year end. TM has the option to deploy this outside of USP areas but will be self-funding.

Catalyst

• Earnings uplift from HSBB and ICT-BPO.
• LTE node fiberization.

Risks

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

Forecasts

Unchanged.

Rating

HOLD, 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 pricing could limit wholesale growth. HSBB equipment subsidy.

Valuation

Reiterate HOLD with unchanged DDM-derived fair value of RM6.05 using WACC of 5.7% and TG of 1%.

Source: Hong Leong Investment Bank Research - 28 Aug 2014