Results

• 9M15 revenue of RM8.54bn was translated into a core net profit of RM612.1m, accounting for 70% and 69% of HLIB and consensus full year estimate.

• Deemed in line considering stronger 4Q15 (9M14 core net profit of RM591.0m accounted for 62.8% of FY14’s).

Deviation

• Within expectations.

Dividend

• None (3Q14: none).

Highlights

• While top line growth continued to be driven by internet (partly due to P1 consolidation) and data, voice performed surprising well, recording a second consecutive sequential expansion thanks to higher bilateral revenue at Global and Wholesale.

• The softer domestic demand was offset by foreign, especially in data which grew 12.4% qoq and 17.6% yoy due to higher leased services, IRU and wholesale Ethernet.

• With P1’s sales contribution stabilizing (+2.3% qoq), internet returned to growth albeit marginally supported by larger broadband user base and higher IPTV revenue.

• UniFi base rose to 793k on the back of 1.769m premise-pass with an implied take-up of 44.8%. Net add momentum slowed to 11k vs. 25k per quarter in 2Q15 due to one-off equipment stock issue hindering installations but is currently resolved. Strong ARPU of RM192 (+RM3 yoy and +RM2 qoq) signals good take-up rate of HyppTV with high value packages.

• Streamyx and fixed line base shrunk by 4k and 35k qoq but ARPU remained stable with RM87 and RM29, respectively.

• P1 continued to weigh on TM’s earnings with 3Q15 EBIT loss of RM53.6m, a slight improvement from 2Q15’s RM59.3m (excluding WiMAX impairment of circa RM23m).

• P1 is touted as center of excellence for TM’s mobile business which also responsible for TMgo. Phased nationwide LTE rollout is progressing well with focus in urban and adjacent areas. User trials and network readiness tests are underway, targeting for commercial launch in 1H16 even without a domestic roaming arrangement. P1 currently has 2k sites with 10% dongle market share.

• HSBB2 agreement has been finalized pending for signing.

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 - 27 Nov 2015