Results

• FY14 revenue of RM11.2bn was translated into a core net profit of RM941.2m on the back of sustained margin. This is above expectations, accounting for 107% and 110% of HLIB and consensus full year forecasts, respectively.

Deviation

• Lower-than-expected COGS.

Dividend

• Recommending a final dividend of 13.4 sen per share (4Q13: 16.3 sen) subject to shareholders’ approval. YTD dividend amounted to 22.9 sen (FY13: 26.1 sen) in line with our expectations.

Highlights

• Excluding P1 which was consolidated in 4Q14, TM concluded FY14 by meeting all headline KPIs as all product segments recorded growth, more than sufficient to offset voice’s decline.

• UniFi net adds sustained momentum with 29k, elevating total base to 729k in 4Q14 (750k at present). This implied a 45% take-up on the back of 1,667k premise-pass. ARPU was strong at RM192 (+RM3 qoq) still implying good take-up rate of HyppTV with high value packages.

• While Streamyx sub base continued to decline for second consecutive quarters, the jump in its ARPU (+RM9 qoq and +RM5 yoy) was a positive surprise as more subscribers opted for more than 4Mbps package and content services.

• Although FY14’s CAPEX did not meet the guidance of 18% of sales, TM continues to see higher CAPEX in FY15 with 20% at sales and this is excluding P1, HSBB2 and SUBB (suburban broadband).

• Headline KPIs and management guidance: 2015 2017 Revenue growth (%) 4.0 - 4.5 5.0 – 5.5 EBIT growth (%) 4.0 – 4.5 5.0 – 5.5 Similarly, these KPIs are excluding P1, HSBB2 and SUBB and other mega projects.

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

• Tweaked model based on latest operational data which led to upward revision of FY15-16 EPS by 4.6% and 7.8%, respectively.

Rating

HOLD , TP: RM6.90 

Positives

• Earnings uplift mainly from HSBB, ICT-BPO andfurther cash management potential, near monopoly of fixed telco market in Malaysia.

Negatives

• Unattractive pricing could limit wholesale growth.HSBB equipment subsidy.

Valuation

Reiterate HOLD after raising our DDM-derived fair value by 0.4% from RM6.87 to RM6.90 with unchanged WACC of 5.7% and TG of 0.5%, reflecting our earnings revisions.

Source: Hong Leong Investment Bank Research - 27 Feb 2015