Results

• Lower earnings – TM’s reported net profit dropped 75% YoY to RM69.7m in 4Q18 due to higher finance cost while normalized PATAMI declined 54% YoY to RM104.9m.

• Flat revenue - 4Q18 revenue dropped 3.5% YoY to RM3.09b as Voice (+1% YoY) failed to offset declines in Internet (-1.6% YoY), Data (-7% YoY) and Voice (-8% YoY).

• Lower QoQ – 4Q18 reported net profit of RM69.7m came against a net loss of RM175.6m in 3Q18 due to an impairment of almost RM1b in 3Q18. Normalised PATAMI declined 61% QoQ. Quarterly revenue grew 5% QoQ following improved performances in different segments (Internet -2%, Voice +8%, Data +11% and Others +8%).

• Drop in subscribers – Total broadband subscribers dropped 4.2% YoY and 2.3% QoQ to 2.23m as UniFi subscribers grew 15% YoY and 3% QoQ to 1.3m but was unable to compensate for decline in Streamyx subs which declined 23% YoY and 9% QoQ to 0.94m.

• Lower ARPU– TM’s Average Revenue Per User (ARPU) for Streamyx broadband was flat at RM88 (vs RM87 in 3Q18) while ARPU for UniFi decreased to RM184 vs RM193 in 3Q18.

• Improved gearing – Cash reserves increased to RM2.8b from RM2.2b in 3Q18. As a result, net debt/EBITDA improved to 2.4x (from 2.59 in 3Q18).

• Slashed dividend payout - TM declared a dividend of 2 sen/share after reducing 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 – FY18 normalized PATAMI dropped 27% YoY to RM632.4m but was within expectation after having accounted for 106% of our full year estimates while twelve months’ revenue was also within expectation after achieving 102% of our FY18 forecast.

• Estimates maintained – We are keeping our revenue and EPS forecast for FY19 and introduce our FY20 forecast.

Valuation & Recommendation

• With the reduced dividend policy, we have switched our valuation to DCF from DDM. Maintain HOLD with a higher target price of RM3.06 (previously RM2.50) based on WACC of 11% and terminal growth of 0%. Potential catalysts could come from ongoing cost optimization and sale of non-core assets such as its subsidiary VADS and office buildings.

Source: JF Apex Securities Research - 27 Feb 2019