Telekom Malaysia Bhd’s (TM) net profit was lower at RM213.2mil in the first quarter ended March 31 against RM250.6mil a year ago due to unrealised foreign exchange (forex) loss on borrowings of RM18.6mil compared with a gain of RM67.9mil a year ago. On a normalised basis, TM’s net profit excluding mainly unrealised forex loss on US dollar borrowings grew by 27.6% year-on-year to RM234mil. Its revenue was 1.7% higher at RM2.42bil from RM2.38bil a year ago mainly driven by Internet and data services, particularly UniFi. Earnings per share were 5.96 sen versus seven sen a year ago. (Source: The Star)

Comment:

1Q13 normalised net profit came within expectation after rising 27.6% YoY to RM234m. Quarterly revenue was also within forecast after gaining 1.7% YoY to RM2.42 billion. EBITDA margin improved to 33.3% from 32% in 4Q12 due to cost management.

On a quarterly basis revenue fell 13.7% YoY while net profit lost 18.9% YoY due to seasonal factors and decline in non-telco income.

Earnings growth continue to be led by data and internet as Streamyx broadband subscribers grew 6.8% YoY to 2.11m and UniFi customers gained 68.4% to 532,000. The management updated that TM currently has 560,000 UniFi customers out of 1.4m premises, achieving a take up rate of almost 40%. Meanwhile, fixed line subscribers were flat at 4.37m while.

Average revenue per user (ARPU) for fixed line was unchanged at RM32, while broadband and UniFi ARPUs were steady at RM82 and RM178 respectively.

On a side note, recently Maxis has teamed up with Astro to launch its IPTV business that will rival TM’s HyppTV. We expect this to have little impact on TM as many households have already subscribed Astro’s satellite TV.

We are keeping our FY13 estimates after 1Q13 revenue account for 22.7% of our full year forecast while normalised net profit of RM234m make up 24.7% of our FY13 estimate.

Maintain BUY with an unchanged target price of RM6.15 based on our Dividend Discount Model. This translates into a potential upside of 12.4%.

Source: JF Apex Research - 31 May 2013