Period

1Q15

Actual vs. Expectations

1Q15 core PATAMI of RM171m (-7.6% YoY) came in within our but below the market consensus’ at 19.2% and 17.8% of full-year estimates, respectively. Note that 1Q is generally a seasonally weak quarter which historically accounted for 19.3%-22.5% of full-year results for the past four financial years.

The lower core PATAMI on a year-on-year basis was mainly due to higher operating cost, forex losses and consolidation of P1. Note that, P1 has contributed RM69.3m turnover to TM in 1Q15 but suffered a loss of RM49.6m at the EBIT level. Stripping off P1 contribution, 1Q15 turnover would have grown 3.2% YoY (to RM2.7b) but suffered a 7.6% YoY dip (to RM292m) at the EBIT level.

Dividends

No dividend was announced during the quarter.

Key Results Highlights

YoY, 1Q15 revenue climbed by 6% to RM2.77b, driven by the higher segmental contribution from the Data (+4% to RM627m), the Internet (+14% to RM830m) and other revenue, which comprises other telco and non-telco-related services (+12% to RM463m). Its Voice segment, meanwhile, declined to RM854m (-2%). The group’s EBIT dipped by 23% to RM243m due to higher OPEX that was particularly driven by higher direct cost (due to higher international outbound, content cost, USP contribution and consolidation of P1), manpower (due to higher salaries) and maintenance cost (due to higher managed accounts).

QoQ, 1Q15 turnover was reduced by 12%, primarily due to lower contribution from all services except the Internet division (0.2% to RM830m) due to higher contribution from P1 (RM69.3m vs. RM42.5m in 4Q14). Its core PATAMI, meanwhile, plunged 51% to RM171m, no thanks to the higher OPEX as well as higher net loss of P1 (RM49.6m vs. RM40.2m) at the EBIT level.

Unifi’s subscribers grew by 4% QoQ (or 28k net adds) to 757k at the end of 1Q15, representing a take-up rate of c.46%. Its blended ARPU, meanwhile, weakened marginally to RM190 (4Q14: RM192).

Streamyx’s subscribership, on the other hand, saw net adds increasing by 7k to 1.509m with a stable ARPU of RM89 (4Q14: RM90). As at 1Q15, 50% (or c.1.39m) TM’s total broadband customers were subscribed to 4Mbps and higher packages.

Outlook

TM is maintaining its headline KPIs for FY15 consisting revenue and EBIT growth of 4.0%-4.5% each. Note that, these headlines KPIs exclude P1, HSBB2, SUBB and other mega projects.

Change to Forecasts

Lowered FY15E/FY16E core NPs by 5.5%/2.0% after: (i) reviewing P1 contributions, (ii) lowering the non-operating income assumptions (to reflect the latest run-rate), and (iii) updating the 1Q15 numbers into our financial model.

Rating

Upgraded to OUTPERFORM

Valuation

Raised our TP to RM7.80 (from RM7.50 previously), after rolling over our valuation base year to FY16. Our new TP is based on targeted FY16 EV/fwd EBITDA of 8.4x, representing an unchanged 2.0x Std. Dev. above its 4-year mean. At the current share price of RM7.24, TM could potentially provide a total return of 10.9% (7.7% capital upside + 3.2% dividend yield) from here.

Risks to Our Call

Regulation risk and worse-than-expected contribution from P1.

Source: Kenanga Research - 1 Jun 2015