Period  4Q13/FY13

Actual vs. Expectations FY13 core PATAMI of RM1.04b (+18% YoY) came in above expectations, accounting for 111.7% and 112.1% of our estimates and market consensus, respectively. The stronger performance was mainly due to: (i) higher operational efficiency with its cost/revenue ratio improving to 87.2% from 88.3% in FY12 and (ii) lower effective tax rate (-0.2% vs our estimate of 7.5%) due to recognition of deferred tax income on unutilised tax incentives. Management expects its effective tax rate to be normalised in FY14.

 The reported PATMI for FY13 decreased by 20% YoY to RM1.01b, impacted by foreign exchange loss on borrowings of RM105m vs a gain of RM73.4m in FY12 as well as lower deferred tax income on unutilised tax incentives.

Dividends  A final dividend of 16.3 sen (FY12: 12.2 sen) was declared, bringing its full-year DPS to 26.1 sen (FY12: 22.0 sen) which translated into a 90% payout ratio and 4.7% dividend yield. The full-year DPS was higher than our forecast (22.8 sen) as well consensus estimate (23.5 sen).

Key Result Highlights   YoY, FY13 revenue climbed by 6% to RM10.6b, driven by the higher segmental contribution from the Data (+14% to RM2.5b), Internet (+13% to RM2.7b) and other revenue, which comprises other telco and non-telco related service (+7% to RM1.8b) but partially offset by the lower Voice segment(-2% to RM3.6b). The normalised EBIT grew by 18.2% to RM1.36b with the margin improving by 1.2ppt to 12.6% due mainly to higher revenue and lower operating expenses on lower marketing (lower A&P and dealers’ commission) and maintenance cost (due to fewer customer projects).

 QoQ, 4Q13 turnover surged by 14% to RM3.0b, thanks to higher revenue from all services. Its normalised EBIT improved by 8.5% to RM380m while its margin softened to 12.6% (3Q13: 13.6%).

 Unifi’s subscribers grew by 4.6% QoQ (or 28k net adds) to 635k at the end of FY13 (FY12: 483k) with a higher blended ARPU of RM185 (FY12: RM181) 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 650k, which implied a take-up rate of c.43%.

 Streamyx’s subscribership, on the other hand, saw net adds increasing by 3k to 1.58m with a higher ARPU of RM85 that was mainly driven by higher take up rate in its high-speed broadband service.

Outlook  TM has introduced its FY14 KPIs, which targets revenue and EBIT to grow by 5%-5.5% YoY and 5% oY, respectively.

Change to Forecasts We have raised our FY14E (+0.4%) and FY15E (+1.3%) core NPs after fine-tuning and taking management latest earnings guidance into the consideration.

Rating Maintain OUTPERFORM

Valuation  Raised TP to RM6.00 (from RM5.94 previously) based on a targeted FY14 EV/forward EBITDA of 6.9x (+0.5x SD).

Risks to Our Call    Regulation risk and persisting margin pressure.

Source: Kenanga