Period     1Q13

Actual vs.  Expectations   TM’s 1Q13 core PATAMI of RM234m came in above expectations and accounted for 26.9% and 26.5% of ours and the street’s full-year estimates respectively. The better than expected results were mainly due to (1) higher revenue, mainly led by the data as well as the internet & multimedia services segments and (2) lower operating costs on the  back of lower direct and maintenance costs.  

Dividends    No dividend was declared during the quarter. For the full financial year, we expect TM to declare a total DPS of 21.4 sen, translating into a 3.9% yield. 

Key Result Highlights   YoY, TM’s 1Q13 revenue improved by 2% to RM2.4b, driven by the higher contribution from the Data (+14%), and Internet (+14%) segments but partially offset by the lower Voice (-7%) and other telco-related services (-11%) divisions. The reported EBITDA grew by 3% to RM807m with the margin having improved by 0.4ppts to 32.9% due mainly to a lower direct and maintenance cost. The core PATAMI meanwhile rose by 28% to RM234m as a result of the higher revenue and margins.   

QoQ, the turnover was lower by 14% due to lower revenues from all the services except for the Internet and multimedia services. The EBITDA margin improved to 32.9% (vs. 31.2%) to RM809m as a result of lower direct cost (lower international outpayment), D&A (lower provision for write-off) and maintenance cost (lower customer projects). The core PATMI fell by 19% due to the absence of the utilisation of tax incentives in contrast to 4Q12 when TM recorded an amount of RM29.4m. 

Unifi’s subscribers grew by 10% QoQ to 532k at the end of 1Q13 with a lower blended ARPU of RM178 (4Q12: RM181) as a result of the higher promotion activities. To date, Unifi’s subscribers have reached more than 560k, which implied a take-up rate of c.40%. Streamyx’s subscribership on the other hand, saw its net adds reduced by 6k to 1.57m but with a higher ARPU of RM82 (+RM1 QoQ).       

Outlook    There are no changes in TM’s FY13 KPIs, which is targeting its revenue and EBIT to record 6.0% and 3.0% in annual growth rates respectively.   

Change to Forecasts      We have raised our FY13 (+7.6%) and FY14 (+1.2%) core NPs after fine-tuning our direct and maintenance cost assumptions and lowering the effective tax rate to align with management’s latest guidance (FY13: 10%, FY14: 25%). 

Rating    Maintain OUTPERFORM

Valuation     We have raised our TM TP marginally to RM6.48 (from RM6.45 previously) based on an unchanged targeted FY14 EV/forward EBITDA of 7.2x (+1.0x SD). 

Risks    Regulation risk and persisting margin pressure.

Source: Kenanga