TM’s 9M17 results were broadly in line with expectations, accounting for 75% of our and street estimates for FY17. 9M17 core earnings grew 11% yoy largely on a positive minority interest charge, which we believe was due to losses from its mobile operations. At the operating level, 9M17 revenue was flat while margins were softer yoy. Growth from its internet segment continued to be largely negated by its fixed line and other operations. Despite the losses from its mobile unit, profit remained relatively stable, which should therefore sustain dividends and yields. Maintain Hold.

9M17 Core Profit Rises 11% Yoy – Within Expectations

TM’s 9M17 core earnings of RM641m (+11% yoy) were within expectations, accounting for 75% of our and street estimates for 2017, due to a positive minority interest charge which we believe was largely from its mobile operations (webe). At the operating level, 9M17 revenue was flat at RM8.9bn (+0.7% yoy) while the EBITDA margin was down 1.5ppts yoy.

3Q17 Core Profit Down 2% Qoq

TM’s earnings have been relatively stable over the past 5 quarters, hovering in a range of RM204m-RM270m/quarter. While the internet division continued to remain the key driver led by the Unifi subscriber expansion, this was negated by the declining fixed line business. For the quarter, data revenues were also weak due to lower IRU revenues. The only positive surprise was the 1% qoq improvement in voice revenue during the quarter, but if the structural decline in the number of fixed line subscribers were not arrested, the improvement would unlikely be sustainable. TM also achieved its mobile household penetration target of 8% this quarter, earlier than expected.

Maintain HOLD and Target Price of RM6.15

We make some slight adjustments to our 2017E EPS post the 3Q17 results, but leave our 12-month DCF-derived target price unchanged at RM6.15. We maintain our Hold rating predominantly for its stable earnings and dividend yields of 3.6%, on our forecasts. Key risks include worse/better-than-expected demand for internet services and a quick/slow turnaround at its loss-making webe operations.

Source: Affin Hwang Research - 23 Nov 2017