Results

• Lower earnings - TM’s 4Q17 normalised PATAMI declined 17.7% YoY to RM222m (after excluding impact of forex and fair value changes) due to higher cost from its Mobile unit despite lower depreciation charges. Reported 4Q17 PATAMI surged 79.5% YoY to RM277m.

• Flat year - FY17 normalised PATAMI rose 1.8% YoY to RM863.2m while reported PATAMI gained 19.8% to RM929.7m. Full year revenue gained 0.2% YoY to RM12.09b.

• Revenue led by Internet - 4Q17 revenue declined 1.1% YoY to RM3.2b as higher contribution from Internet (+7% YoY) was unable to fully offset declines in Data (-2.3% YoY), Voice (-6.7% YoY) and Others (-4.3% YoY).

• Higher QoQ – 4Q17 reported PATAMI rose 30.8% QoQ while normalised PATAMI added 9.1% QoQ. Revenue increased 8.8% QoQ following growths in all product segments (Internet +1.3%, Voice +0.9%, Data +12.8% and Others +31.3%).

• Drop in subscribers – Total broadband subscribers dropped 1.6% YoY and 0.7% QoQ to 2.33m as growth UniFi subscribers of 18.7% YoY and 6% QoQ to 1.13m was unable to compensate for decline in Streamyx subs by -15.1% YoY and -6.3% QoQ to 1.21m.

• Lower ARPU– TM’s Average Revenue Per User (ARPU) for Streamyx broadband was slightly lower at RM90 (vs RM91 in 3Q17) while ARPU for UniFi declined to RM197 vs RM199 in 3Q17.

• 2018 KPIs announced – TM announced its 2018 KPIs which is similar to 2017: 1) revenue growth of 3.5% to 4%, 2) Maintain 2017 EBIT level, 3) customer satisfaction level of 74. Management expects a flat EBIT due to expansion of its LTE and mobile services.

• Dividend – TM declared a 2nd interim dividend of 12.1 sen, taking full year dividend to 21.5 sen and translating into a yield of 3.6%.

Earnings Outlook/Revision

• Earnings slightly below expectation – Twelve months’ normalized PATAMI and revenue accounted for 92% and 95% of our full year estimates respectively following decline in subscribers and ARPU, lower data usage by public sector, less customer projects and lower tuition fees at its university.

• Estimates maintained– We are keeping our EPS forecast for FY18 and FY19. Earnings growth is expected to be driven by Unifi home broadband and narrowed losses from Unifi mobile with several product launches scheduled early this year until mid-year.

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM6.31 based on DDM valuation.

Source: JF Apex Securities Research - 28 Feb 2018