Period  3Q13/913

Actual vs. Expectations TM’s 9M13 core PATAMI of RM749m (+23% YoY) came in above expectations, ccounting for 84.4% and 87.2% of our and the street’s full-year estimates, respectively. The better performance was mainly due to: (i) higher operational efficiency where its cost/revenue ratio improved to 87.2% from 89.1% in 9M12; and (ii) lower effective tax rate (6.0% vs our estimate of 11%) due to recognition of deferred tax income on unutilised tax incentives.

 The reported PATMI for 9M13, meanwhile, decreased 26% YoY to RM668m, impacted by unrealised forex loss of RM96m arising from the strengthening USD and lower tax incentives.

Dividends  No dividend was declared during the quarter.

Key Result Highlights YoY, TM’s 9M13 revenue improved by 6% to RM7.6b, driven by the higher contribution from the Data (+17% to RM1.8b), and the Internet (+13% to RM2.0b) segments but partially offset by the lower Voice (-3% to RM2.7b) segment. The reported EBIT grew by 25% to RM993m with the margin improving by 2.0ppt to 13.0% due mainly to higher revenue and lower operating expenses led mainly by lower marketing (lower A&P and dealers’ commission) and maintenance cost (due to lower customer projects).

 QoQ, TM’s 3Q13 turnover was flat at RM2.6b due mainly to the better earnings from the Data and Internet segments but offset by the lower Voice and other telcorelated services revenue. The group EBITDA, however, was higher by 5% to RM906m as a result of lower operating cost while its margin improved to 34.3% (2Q13: 32.6%).

 Unifi’s subscribers grew by 5% QoQ (or 30k net adds) to 607k at the end of 3Q13 with a higher blended ARPU of RM183 (2Q13: RM180) as a result of the higher take-up rate for its higher-end packages and value-added services. To date, Unifi’s subscribers have reached more than 620k, which implied a take-up rate of c.42%.

 Streamyx’s subscribership, on the other hand, saw net adds increasing by 1k to 1.58m but with a higher ARPU of RM83 that was mainly driven by a 12.5% QoQ increase in its high-speed broadband service (Streamyx 4 & 8 Mbps).

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 (+2.0%) and FY14E (+3.6%) core NPs after lowering the interest cost and effective tax rate assumptions.

Rating Maintain OUTPERFORM

Valuation  Our TP is maintained at RM5.94 based on an unchanged targeted FY14 EV/forward EBITDA of 6.7x (+0.5x SD).

Risks to Our Call Regulation risk and persisting margin pressure.

Source: Kenanga