Results

• Lower earnings – TM reported a net profit of RM 261m in 4Q19 against a net loss of RM176m in 3Q18 while normalized PATAMI increased 8% YoY to RM288m.  Revenue declined – 4Q19 revenue declined 1.8% YoY to RM3.03b as higher revenue from Data (+27% YoY to RM844.5m) was not enough to absorb the declines in Voice (- 14.5% YoY to RM691.5m), Internet (-10% YoY to RM906.1m) and Others (-3.6% YoY to RM592.1m).

• Improved QoQ – TM reported a net loss of RM51.1m while normalised PATAMI declined 34% QoQ to RM190m despite a 6.4% QoQ revenue growth led by Date (+27% QoQ), Others (+4% QoQ) and Voice (+6% QoQ) as Internet declined 6% QoQ.

• Positive 2019 – 2019 reported net profit surged over 300% YoY to RM632.7m while normalized PATAMI rose 58% to RM1b despite revenue falling 3.3% YoY to RM11.4b as ongoing cost optimization continue to show favourable results.

• Arrested subscriber churn – Total broadband subscribers dropped 2.2% YoY but grew 1.2% QoQ at 2.18m as UniFi subscribers grew 11% YoY and 5% QoQ to 1.4m to cushion the decline in Streamyx subs which decreased 21% YoY and 6% QoQ to 0.74m.

• Falling ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband declined to RM96 (vs RM111 in 3Q19) while ARPU for UniFi decreased to RM153 vs RM167 in 3Q19 due to price adjustment in Streamyx plans and year-end Unifi promotion.

• Lower gearing – Net debt/EBITDA decreased to 1.4x (from 1.6 in 3Q19) amid higher cash reserves of RM4.8b vs RM3.7b in 3Q19. The board announced a dividend of 10 sen/share.

Earnings Outlook/Revision

• Below expectation – 2019 normalized PATAMI achieved 84% of our full year estimate of RM1.2b while twelve months’ revenue was within expectation after achieving 95% of our FY19 forecast of RM12b.

• Estimates maintained – We are keeping our revenue and EPS forecast for FY20F. We expect earnings growth will continue to be supported by ongoing cost optimization amid challenges on the topside and capex investment in 5G.

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 - 24 Feb 2020