Results

• 1Q15 revenue of RM2.77bn was translated into a core net profit of RM171.3m, accounting for 20% and 18% of HLIB and consensus full year estimate.

• Deemed in line considering seasonal weakness in 1Q (1Q14 core net profit of RM185.3m accounted for 19.7% of FY14).

Deviation

• Within expectations.

Dividend

• None (1Q14: none).

Highlights

• While facing industry-wide challenges, TM saw pressure on profitability as cost increased, largely stemming from the diversity in product mix and P1 consolidation.

• P1 recorded a top line of RM69.3m with an EBIT of RM49.6m. Excluding P1, 1Q15 revenue growth was actually behind KPI at 3.4%. Nonetheless, TM believes that it is still on track to meet its FY15 KPI.

• UniFi net adds sustained momentum with 28k, elevating total base to 757k in 1Q15. This implied a 46% take-up on the back of 1.67m premise-pass. ARPU was resilient at RM190 (+RM2 yoy and -RM2 qoq) still implying good take-up rate of HyppTV with high value packages.

• Streamyx base turned around after 2 consecutive quarters of attrition by adding 7k while ARPU held up well at RM89 (+RM3 yoy and -RM1 qoq). More than 50% of total broadband customers are now on packages above 4Mbps.

• Do not expect material impact from the 2 broadband plans introduced in response to government’s call for affordability. TM hopes that by lowering entry price, increase in adoption will eventually lead to package upgrade.

• Inked Memorandum of Collaboration with Ministry of Federal Territories to work together towards deploying free and premium WiFi service in Wilayah Persekutuan.

• CAPEX for HSBB2 and SUBB is not finalized. Under HSBB2, 250k ports will be installed passing through 410k premises while SUBB will add 420k ports through 750k premises.

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: RM6.90

Positives

• Earnings uplift mainly from HSBB, ICT-BPO, 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 TP of RM6.90 based on WACC of 5.7% and TG of 0.5%.

Source: Hong Leong Investment Bank Research - 1 Jun 2015