Period  2Q13/1H13

Actual vs. Expectations  TM’s 1H13 core PATAMI of RM478.5m came in above expectations and accounted for 56.3% and 57.0% of our and the street’s full-year estimates respectively. The better performance was mainly due to: (i) higher revenue, mainly led by the data as well as the internet & multimedia services' segments; and (ii) lower operating costs on the back of lower direct and maintenance costs.

 1H13 reported PATMI, meanwhile, was lower by 29% YoY to RM427m, impacted by unrealised forex loss arising from the strengthening USD and lower tax incentives.

Dividends  Declared an interim dividend of 9.8 sen (1H12: 9.8 sen) with an ex-date set on 10th of Sept. For the full financial year, we expect TM to declare a total DPS of 22.3 sen, translating into a 4.2% yield.

Key Result Highlights  YoY, TM’s 1H13 revenue improved by 5% to RM5.0b, driven by the higher contribution from the Data (+17%), and the Internet (+12%) segments but partially offset by the lower Voice (-4%) segment. The reported EBITDA grew 6% to RM1.7m with the margin improving by 30 bps to 32.7% due mainly to a lower direct (lower international & interconnect out payment) and maintenance cost (lower customer projects). The core PATAMI meanwhile rose by 18% to RM479m driven by higher revenue and margins.

 QoQ, the group’s 2Q13 turnover advanced by 8% to RM2.6b, primarily contributed by revenue from all services. However, the EBITDA margin weakens slightly to 32.6% (vs. 32.9%) due to higher maintenance cost and supplies & material expenses.

 Unifi’s subscribers grew by 8% QoQ to 577k at the end of 1Q13 with a higher blended ARPU of RM180 (1Q13: RM178) thus signalling an encouraging take-up in its higher-end packages as well as value-added services. To date, Unifi’s subscribers have reached more than 590k, which implied a take-up rate of c.40%.

 Streamyx’s subscribership, on the other hand, saw its net adds reduced by 1k to 1.57m but with unchanged ARPU of RM82.

Outlook  There is no change in TM’s FY13 KPIs, which is targeting its revenue and EBIT to grow at 6.0% and 3.0% annually, respectively.

Change to Forecasts  We have raised our FY13E (+4.5%) and FY14E (+3.9%) core NPs after fine-tuning our direct and marketing cost assumptions.

Rating   Maintain OUTPERFORM

Valuation  We have raised our TP marginally to RM5.94 (from RM5.91 previously) based on an unchanged targeted FY14 EV/forward EBITDA of 6.7x (+0.5x SD).

Risks  Regulation risk and persisting margin pressure.

Source: Kenanga