TM’s 2017 core net profit grew by 2% yoy to RM863m on lower effective tax rate. Moving into 2018, management expects revenue to grow by 3.5-4% but a potential margin compression may cause EBIT to stay flat. Overall, the results are within market and our expectations. Maintain HOLD with an unchanged DCF-derived target price of RM6.15. At 25x 2018E PER / 3.6% yield, valuation looks fair.

2017 Core Net Profit Grew by 2% to RM863m – Within Expectations

TM’s 2017 EBITDA fell by 4% yoy to RM3.7bn on higher operating cost. Lower depreciation charges (-6% yoy due to lower write-off of WiMAX assets) and a decline in effective tax rate (-2.9ppt to 30.3%) have supported core earnings, which clocked in at RM863m (+2% yoy). Overall, the results are within market and our expectations. TM has proposed a second interim dividend of 12.1 sen, its 2017 full year dividend of 21.5 sen was unchanged yoy.

Internet Reported Higher 2017 Revenue, Decline Elsewhere

TM’s Internet segment reported higher 2017 revenue of RM3.97bn (+8% yoy) on higher unifi mobile customer base (+14% yoy) and higher subscriptions for unifi TV. Elsewhere, the voice segment saw a 5% revenue decline due to lower traffic minutes / lower customer base, and others (data, education) reported 3% yoy decline on lower activities.

Management Target Revenue Growth But Flat 2018 EBIT

Sequentially, 4Q17 core earnings grew 9% to RM222m on a higher revenue (+9% qoq). Moving into 2018, management aims to grow its revenue by 3.5-4% on higher unifi / unifi TV / unifi mobile subscriptions and better contributions from the data business segment, driven by a new data centre in Cyberjaya (operational in 2018). Management has however, expect its EBIT to be flat due to slight margin compression.

Maintain HOLD at An Unchanged Target Price of RM6.15

We made some minor adjustments to our 2018-19E EPS post-results, but leave our DCF-derived TP unchanged at RM6.15. Maintain HOLD. TM remains as our preferred pick in Malaysia’s telecommunication sector due to its relatively benign operating environment. Its valuations of 25x 2018E PER / 3.6% yield looks fair. Key risks: worse/better-than-expected demand for internet services and a quick/slow turnaround at its loss-making unifi mobile operations. This note marks a transfer of analyst coverage.

Source: Affin Hwang Research - 28 Feb 2018