Results

• Higher earnings – TM achieved 3Q19 reported net profit of RM 261m against a net loss of RM176m in 3Q18, while normalized PATAMI increased 8% YoY to RM288m.

• Decline in revenue – 3Q19 revenue declined 3.2% YoY to RM2.85b as higher revenue from Data (+11% YoY to RM666m) was not enough to absorb the declines in Voice (-13% YoY to RM653m), Internet (-6% YoY to RM964m) and Others (-0.1% YoY to RM570m).

• Improved QoQ – 3Q19’s reported net profit rose 130% QoQ while normalised PATAMI climbed 27% QoQ on the back of a 3% QoQ revenue growth, led by Others (+22% QoQ) as Internet (-0.4% QoQ), Voice (-0.5% QoQ) and Data (-2% QoQ) showed flat performances.

• Positive 9M19 – 9M19 reported net profit surged 720% YoY to RM684m while normalized PATAMI rose 54% to RM811m despite revenue falling 3.8% YoY to RM8.4b as ongoing cost optimization continue to show favourable results.

• Continuous subscriber churn – Total broadband subscribers dropped 5.6% YoY but was flat QoQ at 2.16m as UniFi subscribers grew 8.9% YoY and 2.5% QoQ to 1.37m but was unable to compensate for decline in Streamyx subs which declined 23% YoY and 4.5% QoQ to 0.79m.

• Slightly lower ARPU– TM’s Average Revenue Per User (ARPU) for Streamyx broadband declined to RM111 (vs RM113 in 2Q19) while ARPU for UniFi decreased to RM167 vs RM169 in 2Q19 due to new subscribers with lower priced plans.

• Lower gearing – Net debt/EBITDA decreased to 1.6x (from 1.8 in 2Q19) amid higher cash reserves of RM3.7b vs RM3.1b in 2Q19. No dividend is expected until end-FY19.

Earnings Outlook/Revision

• Within expectation – 9M19 normalized PATAMI achieved 68% of our full year estimate of RM1.2b while nine months’ revenue was within expectation after achieving 70% of our FY19 forecast of RM12b.

• Estimates maintained – We are keeping our revenue and EPS forecast for FY19 and FY20. We expect earnings growth will continue to be supported by ongoing cost optimization amid challenges on the topside. The management is aiming to grow revenue from private and public sectors to mitigate challenges in the retail segment. Moving forward, TM is running 5G demonstration projects in Langkawi and Selangor in partnership with Huawei

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM4.00 based on DCF. Potential catalysts could come from sale of non core assets such as its subsidiary VADS and office buildings.

Source: JF Apex Securities Research - 27 Nov 2019