Period  4Q14/FY14

Actual vs. Expectations  FY14 core PATAMI of RM941m (-9.4 YoY) came in above expectations, and accounted for 117.3% of our, and 110.5% of the street’s, full-year estimates. Reported PATAMI of RM832m, however, was within expectation at 103% of our forecast and 98% of the consensus.

 The key positive deviation on our end was mainly due to the higher forex translation loss and one-off RM83.4m MESRA programme (where the retirement scheme had ended in December 2014) cost that incurred in 4Q14.

Dividends  A final dividend of 13.4 sen was declared, bringing its fullyear DPS to 22.9 sen (FY13: 26.1 sen) which translated into a 90% payout ratio and 3.2% dividend yield.

Key Results Highlights  YoY, FY14 revenue climbed by 6% to RM11.2b, driven by the higher segmental contribution from the Data (+4% to RM2.6b), Internet (+12% to RM3.0b) and other revenue, which comprises other telco and non-telco related services (+19% to RM2.2b). Its Voice segment, meanwhile, declined to RM3.5b (-4%). The group’s EBIT dipped by 6% to RM1.3b due to higher OPEX on bad debt (due to tighter credit treatment policy), maintenance cost (due to higher customer projects) and supplies & materials (due to higher cable cost, cost of sales and higher subscriber equipment). Its capex/revenue ratio, meanwhile, was lowered to 16.3% from 17.5% a year ago given that some of the customer projects have been delayed to FY15.

 QoQ, 4Q14 turnover improved by 20%, primarily due to high contribution from all services as well as 3-month P1 contribution. Its core PATAMI, meanwhile, surged 83% to RM350m after excluding the higher forex translation loss and RM83.4m MESRA Programme cost (net of tax).

 Unifi’s subscribers grew by 4% QoQ (or 27k net adds) to 700k at the end of 3Q14 with a slightly higher blended ARPU of RM189 (2Q14: RM187). To date, Unifi’s subscribers have reached more than 712k, which implied a take-up rate of c.45%.

 Streamyx’s subscribership, on the other hand, saw net adds lowered by 11k to 1.5m with a higher ARPU of RM90 (3Q14: RM81), thanks to upselling and higher take-up of high-end packages. As at FY14, 48% (or >1m) TM’s total broadband customers are subscribing to 4Mbps and higher packages.

Outlook  TM has introduced its FY15 KPIs, which targets annual revenue and EBIT to grow by 4%-4.5% YoY each.

Change to Forecasts  Raised FY15E turnover by 3% but lowered core NP by 5% after: (i) raising our depreciation (to reflect the latest run rate) & interest expenses, and (ii) taking management’s latest earnings guidance into the consideration. Meanwhile, we also take this opportunity to introduce our FY16E.

Rating Maintained MARKET PERFORM

Valuation  Raised our TP to RM7.05 (from RM6.92 previously) based on unchanged targeted FY15 EV/fwd EBITDA of 7.7x (+1.5x standard deviation above its 4-year mean).

Risks to Our Call  Regulation risk and persistent margin pressure. 

Source: Kenanga