Results

• FY15 revenue of RM2.9bn was translated into a core net profit of RM195.4m, accounting for 20% and 22% of HLIB and consensus full year estimates, respectively.

• Deemed in line considering seasonal weakness in 1Q (1Q15 core net profit of RM171.3m accounted for 19% of FY15).

Deviation

• Within expectations.

Dividend

• None (1Q15: none)

Highlights

• Internet had become the largest sales contributor at 31%, surpassing voice’s 30% for the first time. Its growth trajectory (+8% yoy and +4% qoq) is more than sufficient to offset voice’s contractionary trend (-1% yoy and -4% qoq).

• This was attributable to UniFi with 38k net adds in 1Q16 elevating total base to 877k, representing 44% adoption rate of on the back of 1.98m ports. ARPU strengthened to RM192 as more than half of the base are on packages of 10Mbps and above after the launch of all new UniFi Advance packages.

• While ARPU was stable at RM89, Streamyx base fell by 14k qoq to 1.49m as majority upgraded to UniFi. Out of the total broadband base, 59% of them are now on packages of 4Mbps and above.

• Webe continued to weigh on TM’s earnings with 1Q16 EBIT loss of RM123.5m on the back of RM51.9m revenue.

• Currently, Webe is conducting user trials with 7k test SIMs and target to be commercially available by mid FY16. Service coverage is extensively focused in Johor, followed by Klang Valley and Penang. Using the mixture of 850MHz and 2.6GHz spectra for coverage and capacity purposes, respectively.

• Unlikely to participate the current stiff mobile competition but focusing more offering convergence to existing base.

• DEL ARPU was maintained sequentially at RM28.

• Headline KPIs and FY16 CAPEX were maintained. CAPEX is budgeted at 25-30% of revenue mainly to fund HSBB2, SUBB, LTE and SKR1M 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

• Unchanged.

Rating

HOLD , TP: RM6.89

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 RM6.89 based on unchanged WACC of 5.8% and TG of 0.5%.

Source: Hong Leong Investment Bank Research - 26 May 2016