Results

• 1H15 revenue of RM5.61bn was translated into a core net profit of RM390.9m, accounting for 45% and 42% of HLIB and consensus full year estimate.

• Deemed in line considering stronger 2H15 (1H14 core net profit of RM399.4m accounted for 42.5% of FY14).

Deviation

• Within expectations.

Dividend

• Declared an interim single-tier dividend of 9.3 sen (2Q14: 9.5 sen) per share which goes ex on 7 Sept.

Highlights

• Interestingly, voice was the main driver for 2Q15’s sequential growth with 2.8% qoq, apart from other non-core revenues. This was attributed to the increase in global wholesale minute.

• Internet revenue was flat with 0.2% qoq expansion as organic growth from broadband business was partly neutralized by the lower contribution from P1 which fell by -23.4% qoq.

• P1 continued to weigh on TM’s earnings as EBIT losses expanded by 66% from RM49.6m to RM82.3m.

• P1’s LTE rollout is underway on the existing 2k sites while some sites are being tested by focus groups. P1 is confident to close a domestic roaming deal with incumbent with service introduction by year end.

• UniFi net adds sustained momentum with 25k, elevating total base to 782k in 2Q15. This implied a 46% take-up on the back of 1.708m premise-pass. ARPU was resilient at RM190 (+RM3 yoy and flat qoq) still implying good take-up rate of HyppTV with high value packages.

• Both Streamyx and fixed line base shrunk by 3k and 36k qoq, along with ARPU by RM3 and RM1 qoq, respectively.

• Signed agreements with Symphony Communication of Thailand and Telcotech of Cambodia, forming a consortium to establish the Malaysia-Cambodia-Thailand (MCT) submarine cable system, spanning circa 1,300km linking the 3 countries with further access to Laos, Myanmar and Vietnam via terrestrial links.

• HSBB2 discussion with government is at final stage and expects to ink the agreement in next 1-2 months.

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 - 26 Aug 2015