Results

• 9M14 revenue of RM8.1bn was translated into a core net profit of RM655.0m on the back of sustained margin. This is within expectations, accounting for 74% and 73% of HLIB and consensus full year forecasts, respectively.

Deviation

• In line.

Dividend

• As expected, none (3Q13: none). YTD dividend amounted to 9.5 sen (9M13: 9.8 sen) per share.

Highlights

Major clean-up of Streamyx database stoke off circa 90k subs causing first ever dip in broadband customer base to RM2.2m (-1.7% qoq and +1.3%yoy) and took the blame of the fall in Internet revenue to RM714m (-1.8% qoq and +4.2% yoy).

UniFi net adds regained momentum with 27k elevating total base to 700k in 3Q14 (>712k at present). This implied a 44.7% take-up on the back of 1,565k premise-pass. ARPU was healthy at RM189 (+RM2 qoq) still implying good take-up rate of HyppTV with high value packages.

Data revenue plunged by 9.1% qoq and 7.8% yoy to RM586m in the absence of IRU sales. We believe this is somewhat impacted by the double outage of its AAG in July and Sept. Worse still, TM recently issued another service disruption due to a fault detected on its SMW4 cable.

TM further revised down FY14 CAPEX guidance to 18% (vs. 22% previously) of sales as customer projects are deferred.

Stayed tight-lipped on the development of HSBB2 due to inconclusiv e discussion with govt while only ready to share P1’s business plan by 1Q15.

Accelerated depreciation of USP asset will be extended into 4Q14 within the range of RM8-10m impact.

Confident in achieving top line KPI of 5-5.5% (9M14: +5.6%) growth but likely to miss EBIT growth of 5% (9M14: -2.8%).

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

• Maintained.

Rating

HOLD, TP: RM6.87

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 RM6.87 using WACC of 5.7% and TG of 0.5%.

Source: Hong Leong Investment Bank Research - 27 Nov 2014