Results

• Profit dragged down by Webe - TM’s 3Q16 PATAMI decreased 4.2% YoY to RM159.8m due to accelerated depreciation and write-off of WIMAX assets related to Webe. After removing the effect of forex gains, normalised PATAMI dropped 10% YoY to RM207.5m.

• Flat revenue - 3Q16 revenue was flat YoY at RM2.92bn as higher contribution from Internet (+8.8% YoY) and Others (+9.3% YoY) offset the decline in Voice (-10.5%) and Data (- 3.8% YoY) revenue.

• Improved QoQ – 3Q16 PATAMI gained 14.6% QoQ while normalised PATAMI increased 23.9% QoQ following lower depreciation. Profit improved despite revenue falling 4% QoQ as all divisions saw QoQ decline in sales except Internet.

• UniFi continued to lead growth – UniFi subscribers grew 15.1% YoY and 2.6% QoQ to 921k. Meanwhile, Streamyx subs declined 3.5% YoY and 1.2% QoQ to 1.45m as subscribers migrate to UniFi. Out of its total Internet subscribers of 2.37m, 75% of customers are packages of 10Mbps and above.

• Higher ARPU– TM’s Average Revenue Per User (ARPU) for Streamyx broadband was slightly higher at RM90 (vs RM89 in 2Q16). ARPU for UniFi was increased to RM197 from RM194 in 2Q16 due to higher upselling and more purchase of premium IPTV content.

• Webe took off – Webe was officially launched in September and management said it still early to share any financial performance. Moving forward, accelerated depreciation related to Webe’s LTE network is expected to decline in 2H16.

Earnings Outlook/Revision

• Earnings within expectation – Nine months’ normalized PATAMI hit 70% of our FY16 forecast while revenue met 72% of our full year estimate.

• Estimates maintained– We are maintaining our EPS forecast for FY16 and FY17. Long-term prospect is supported by the rollout of UniFi to suburban areas under HSBB2 and SUBB.

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM6.66 based on DDM valuation.

Source: JF Apex Securities Research - 28 Nov 2016