Results

• Lower earnings - TM posted a net loss of RM175.6m in 3Q18 as compared to a net profit of RM211.8m in 3Q17 following an impairment loss of almost RM1b on wireless and fixed network assets. Excluding the impairment, normalised PATAMI rose 31% YoY to RM266.4m.

• Flat revenue - 3Q18 revenue added 0.2% YoY to RM2.95b as higher contribution from Internet (+2% YoY) and Others (+12% YoY) was able to fully offset declines in Data (-5% YoY) and Voice (-5% YoY).

• Higher QoQ – Due to the impairment, 3Q18 reported net loss of RM175.6m against a net profit of RM102m in 2Q18 while normalised PATAMI rose 71% QoQ. Quarterly revenue gained 0.3% QoQ following mixed performances in different segments (Internet -5%, Voice +8%, Data +8% and Others -6%).

• Improved margins– 3Q18 normalised EBITDA margin was higher at 32% from 28% in 2Q18 while normalized PATAMI margin climbed to 9% from 5.3% in the previous quarter.

• Drop in subscribers – Total broadband subscribers dropped 2.7% YoY and 0.7% QoQ to 2.29m as UniFi subscribers grew 19% YoY and 4% QoQ to 1.26m but was unable to compensate for decline in Streamyx subs which declined 20% YoY and 6% QoQ to 1.03m.

• Higher ARPU– TM’s Average Revenue Per User (ARPU) for Streamyx broadband was lower at RM87 (vs RM88 in 2Q18) while ARPU for UniFi increased to RM193 vs RM190 in 2Q18.

• Improved gearing – Cash reserves increased to RM2.2b from RM1.6b in 2Q18. As a result, gross debt/EBITDA improved to 2.50x (from 2.59x in 2Q18).

• Slashed dividend payout - TM has reduced its dividend policy of RM700m or 90% of normalized PATAMI, whichever higher, to 40%-60% of PATAMI depending on earnings performance, financial conditions, reserve level and capital commitments.

Earnings Outlook/Revision

• Within expectation – 9M18 normalized PATAMI of RM527.5m was within expectation after having accounted for 88% of our full year estimates while nine months’ revenue was also within expectation after achieving 75% of FY18 forecast.

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

Valuation & Recommendation

• Due to the reduced dividend policy, we downgraded the stock to HOLD with a lower target price of RM2.50 (previously RM3.90) based on FY19F DDM valuation. The stock offers a dividend yield of 4.4%.

Source: JF Apex Securities Research - 27 Nov 2018