Results

• TM’s 4Q16 PATAMI decreased 19.8% YoY to RM154.3m due to accelerated depreciation and write-off of WIMAX assets related to Webe. After removing the effect of forex gains, normalised PATAMI increased 2.9% YoY to RM269.95m.

• Higher revenue - 4Q16 revenue improved 1.7% YoY to RM3.24bn as higher contribution from Internet (+10.3% YoY) offset the decline in Voice (-2.6%), Data (-1.2% YoY) and Others (-0.6% YoY) revenue.

• Improved QoQ – 4Q16 PATAMI dropped 3.4% QoQ while normalised PATAMI surged 30.1% QoQ. Revenue jumped 10.7% QoQ as all four divisions improved including a surprise 7% surge in Voice revenue.

• Flat subscriber growth – Total broadband subscribers were flat at 2.37m as UniFi subscribers grew 13.1% YoY and 3% QoQ to 949k while Streamyx subs declined 3.5% YoY and 1.9% QoQ to 1.42m as subscribers migrate to UniFi. UniFi subscriber growth is expected to accelerate with the ongoing implementation of HSBB2 and SUBB.

• Higher ARPU– TM’s Average Revenue Per User (ARPU) for Streamyx broadband was slightly higher at RM92 (vs RM90 in 3Q16). ARPU for UniFi was increased to RM201 from RM197 in 3Q16 due to higher upselling and more purchase of premium IPTV channels.

• Webe progress – Webe was officially launched in September and has so far achieved 61% of coverage nationwide and account for 2% of TM households. The management targets to increase penetration rate to 8% to 10% by end-2017.

Earnings Outlook/Revision

• Earnings within expectation – Twelve months’ normalized PATAMI slightly exceeded our FY16 forecast while full year revenue met 98% of our estimate.

• Estimates maintained– We are maintaining our EPS forecast for FY17 and FY18. Long-term prospect is supported by the rollout of UniFi to suburban areas under HSBB2 and SUBB. FY17 net profit is expected to climb 21% as TM receives tax incentive on broadband capex that will last until 2019 as well as higher topline led by UniFi.

• Dividend – TM announced a second interim dividend of 12.2 sen, taking total dividend for 2016 to 21.5 sen, translating into a yield of 3.5%.

Valuation & Recommendation

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

Source: JF Apex Securities Research - 23 Feb 2017