Journey to Wealth
Telekom Malaysia - Capital repayment, earnings outperformed BUY
' We raise Telekom Malaysia (TM) to a BUY and raise our fairvalue to RM5.50/share, following a stronger-than-expected 4Q11 results. TM alsoannounced a capital reduction exercise enabling a special dividend payout of 30sen/share.
' The group reported a core net profit of RM240mil for its 4Q11,which brought full-year core earnings to RM634mil. This was ahead of both our,and consensus, expectations, accounting for 113% and 108% of full-yearestimates, respectively. Following the stronger-than-expected results, we raiseour FY12-13F earnings by 4%-14%, mainly to reflect higher Unifi subscriptionand Unifi ARPU as well as lower depreciation charges.
' 4Q11 revenue grew 5% QoQ, led by growth in Unifi. Unifi subscriberbase saw a 52K net addition in 4Q while ARPU remained stable atRM184/subscriber. As of Dec 2011, Unifi subscriber base stood at 236K. Core earnings grew by a whopping 75% QoQ onthe back of strong Unifi growth and lower depreciation charge. From 4Q11onwards, the useful life of certain network assets had been extended to 20 yearsfrom 15 years previously.
' TM's 2012 KPI entails a 5% revenue growth (similar to FY11 growth) but EBITDA margin is expectedto fall to 32% (vs. 33% core EBITDA margin in FY11). Factors driving thereassumptions are:- (1) Higher marketing cost and commissions, given expectedhigher competition; (2) higher maintenance cost for network equipment, given warrantyexpiration; (3) Higher content cost to beef up its Hypp.TV offering.
' On the bright side, management sees the potential forupselling its Unifi service as currently the majority of subscribers are on themost basic package (i.e. VIP5: RM150/month package for a maximum 60GB download/month).
' Take-up rate for Unifi has accelerated to 20% against 1.16milpremises delivered in 2011 (vs. 16% as of 3Q11). Net additions improved from17K/month (3Q11) to 24k/month (4Q11). Momentum is maintained since Dec 2011 at23K/month net add, bringing the latest Unifi subscriber base to 283K. Thiscompares well vs. the 2011 average net add of 17K/month.
' Beyond earnings fundamentals, we see room for dividend upside.Management has proposed a 30 sen/share special dividend by way of capitalreduction off the current RM1/per share par value. This brings total FY11dividend to 49.6 sen/share (9.8% dividend yield).
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
