Results

• Flat earnings - TM’s 3Q17 normalised PATAMI slipped 1.9% YoY to RM203.5m after excluding forex gain. Including the impact of forex, reported PATAMI surged 32.5% YoY to RM211.8m. 9M17 normalised PATAMI grew 11% YoY to RM641.3m.

• Revenue led by Internet - 3Q17 revenue rose 0.6% YoY to RM2.9bn as higher contribution from Internet (+9.4% YoY) was offset by declines in Data (-4.2% YoY), Voice (-1% YoY) and Others (-6.1% YoY). 9M17 revenue gained 0.7% YoY to RM8.9b. Going forward, TM expects revenue growth to be challenging under TM ONE (enterprise and public sector clients).

• Flat QoQ – 3Q17 reported PATAMI declined 0.6% QoQ while normalised PATAMI dropped 2.1% QoQ after removing forex impact. Revenue increased slightly by 0.5% QoQ following growth in Internet and Voice cushioning declines in Data and Others.

• Drop in subscribers – Total broadband subscribers dropped 0.4% QoQ to 2.35m despite UniFi subscribers growing 15.3% YoY and 5.5% QoQ to 1.06m as Streamyx subs declined 11% YoY and 4.7% QoQ to 1.29m. UniFi subscriber growth is expected to continue with the ongoing implementation of HSBB2 and SUBB. TM will also be rolling out fibre in high-rise residential to compete with TIME Fibre.

• Steady ARPU– TM’s Average Revenue Per User (ARPU) for Streamyx broadband was unchanged at RM91 (vs RM90 in 2Q17) while ARPU for UniFi was slightly lower at RM199 vs RM200 in 2Q17.

• Unifi mobile progress – After its retail launch in September 2016, Unifi mobile (rebranded from webe) has now achieved 8% of TM household penetration ahead of its target by year-end.

Earnings Outlook/Revision

• Earnings below expectation – Nine months’ normalized PATAMI and revenue accounted for 68% and 70% of our full year estimates respectively.

• Earnings estimates reduced– We are lowering our EPS forecast for FY17 and FY18 by 4.8% and 5.2% respectively following the higher-than-expected tax rate and lower-than expected revenue from Data and Others. Forecasts for FY17 and FY18 were also slashed by 4.8% and 4.7% respectively.

Valuation & Recommendation

• Maintain HOLD with a lower target price of RM6.31 (previously RM6.66) based on DDM valuation. Long-term prospect is supported by the rollout of UniFi under HSBB2 and SUBB. Revenue

Source: JF Apex Securities Research - 23 Nov 2017