TM's 9MFY12 results  were  marginally  ahead  of  our  and  consensus  expectations by some 3%. We are keeping our recently-lowered forecast, which builds in higher opex  into  2013  in  view  of  competition  heating  up  for  Unifi.  Despite  potential regulatory setbacks, we feel that TM may have its way as policies in recent years have favoured the group. We are retaining our BUY call based on a FV of RM6.20.

In  line.  TM  reported  core  earnings  of  RM186.1m  (-17%  q-o-q/+35.5%  y-o-y)  and RM592.2m  for  9MFY12  (+50.2%  y-o-y).  This  excluded  forex  items  (RM54m)  and RM248m in broadband tax incentive booked in 2Q/3Q12. The group's EBITDA growth decelerated to 2% from 5% in 1HFY12, as revenue contracted  by 2% q-o-q from lower project  revenue  (MERS999).  Its  YTD  revenue  growth  of  7.2%  (+2%  q-o-q)  compares with  its  KPI  of  5%  for  2012  but  full-year  figures  should  comfortably  surpass  its  target given  the  typically  stronger  4Q12.  TM  will  unveil  its  2013  and  mid-term  KPIs  after  the release of its 2012 results in Feb 2013. 

Purged  7k  Unifi  subs.  The  clean-up  of  its  Unifi  subscriber  registry  during  the  quarter (i.e.  Unifi  customers  who  have  exceeded  their  credit  limit  classified  as  delinquents) contributed  to  force churn  totaling  7k  in  3Q12.  Even  excluding  this,  subs  growth  would have decelerated for the second consecutive quarter from a high of 79k in1Q2012. With over  465k  customers  currently,  TM  is  on  track  to  meet  its  target  of  0.5m  Unifi  subs  by end-2012 (1.34m premises passed by year-end). Disappointingly, TM did not say how it intends  to  retain  the  Unifi  customers  reaching  the  end  of  their  two-year  contracts although management highlighted that some retention benefits will be offered. We think TM may look to bundle in higher speeds for its Unifi plans to lock in customers, as the cost of doing so is not significant. It may be compelled to 'give more for less' to counter the competition from Maxis, which will be launching an IPTV product in 1Q2013. 

M&As.  TM  continues  to  be  on  the  lookout  for  mobility  solutions  to  improve  its  overall triple  play  proposition.  We  are  of  the  view  that  TM  may  consider  an  acquisition  that provides strategic access to a wireless technology to strengthen its broadband offerings and widen its revenue stream.  

Regulatory update. TM is of the view that high-speed broadband (HSBB) should not be included  under  the  broadband  access pricing  framework,  an  issue  it  has  taken  up  with the regulator.  We think TM might have its way, given that policies in recent years have favoured  the  company  to  a  certain  extent.  We  gather  that  the  Malaysian Communications  and  Multimedia  Commission  (MCMC)  will  issue  a  determination  after consulting the operators by year-end. TM said there has been no change in the content guidelines issued by MCMC in May.

Source: OSK