Results

• Lower earnings - TM’s 2Q18 headline PATAMI dropped 51.5% YoY to RM102m on the implementation of the Mandatory Standard on Access Pricing. After removing forex loss, normalised PATAMI declined 25% YoY to RM155.8m

• Flat revenue - 2Q18 revenue declined 1.5% YoY to RM2.94b as higher contributions from Internet (+9.9% YoY) and Others (+11% YoY) were unable to fully offset declines in Data (-17% YoY) and Voice (-12% YoY).

• Higher QoQ – 2Q18 reported PATAMI dropped 35% QoQ while normalised PATAMI rose 48% QoQ. Quarterly revenue gained 3% QoQ following mixed performances in different segments (Internet +7%, Voice -9%, Data -10% and Others +34%).

• Steady margins– 2Q18 normalised EBITDA margin was flat at 28% from 27.3% in 1Q18 while normalized PATAMI margin was unchanged at 5.3% from the previous quarter.

• Drop in subscribers – Total broadband subscribers dropped 2.4% YoY to 2.3m as UniFi subscribers grew 21% YoY and 3% QoQ to 1.22m but was unable to compensate for decline in Streamyx subs which declined 20% YoY and 4% QoQ to 1.09m.

• Lower ARPU– TM’s Average Revenue Per User (ARPU) for Streamyx broadband was lower at RM88 (vs RM90 in 1Q18) while ARPU for UniFi declined to RM191 vs RM194 in 1Q18.

• Improved gearing – Cash reserves increased to RM1.61b from RM1.46b in 1Q18. As a result, gross debt/EBITDA improved to 2.59x (from 2.64x in 1Q18) and is slightly over management’s internal guideline of 2.5x.

Earnings Outlook/Revision

• Within expectation – 1H18 normalized PATAMI of RM261.1m was within expectation after having accounted for 44% of our full year estimates while six months’ revenue was also within expectation after achieving 50% of FY18 forecast.

• Estimates maintained – We are keeping our revenue and EPS forecast for FY18 FY19.

• Risks - Failure to meet dividend policy of RM700m or 90% of normalized PATAMI, whichever is higher. TM continues to face challenges from increasing regulatory and competitive pressures.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM3.90 based on DDM valuation. After the recent selldown, the stock offers an attractive dividend yield of 5%.

Source: JF Apex Securities Research - 30 Aug 2018