Period

2Q15/1H15

Actual vs. Expectations

1H15 core PATAMI of RM391m (-2.1% YoY) came in within expectations and accounted for 46%/42% of our/street’s full-year estimates. Note that 1H generally accounted for c.41%-46% 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 contributed RM122.4m turnover to TM in 1H15 but suffered a loss of RM131.9m at the EBIT level. Stripping off P1 contribution, 1H15 turnover would have grown 0.9% YoY (to RM5.5b) with higher EBIT of RM680m (3.9% YoY).

Dividends

Declared an interim dividend of 9.3 sen (1H14: 9.5 sen). For the full-financial year, we expect TM to declare a total DPS of 21.1 sen, translating into a 3.3% yield. TM’s dividend policy remains unchanged at RM900m or 90% of normalised net profit, whichever is higher.

Key Results Highlights

YoY, 1H15 revenue climbed by 3% to RM5.6b, driven by the higher segmental contribution from Internet (+14% to RM1.7b) and other telco & nontelco related services (+1%) but partially offset by the decline in voice (-2%) and Data (-1%). The group’s EBIT dipped by 17% to RM548m due to higher OPEX that was mainly driven by higher direct cost (due to higher traffic minutes, infra & VOIP costs), manpower cost (due to higher staff benefits) and consolidation of P1.

QoQ, 2Q15 turnover was up by 2%, primarily due to higher contribution from all services except leased and data services (-2.2% to RM613m) as a result of slower demand on its global & wholesale business, partially offset by higher revenue at managed accounts. Its core PATAMI, meanwhile, improved 28% to RM220m, thanks to the higher EBITDA margin coupled with a lower effective tax rate (29% vs. 33%).

Unifi’s subscribers grew by 3% QoQ (or 25k net adds) to 782k at the end of 2Q15, representing a take-up rate of c.46%. Its blended ARPU, meanwhile, stabilised at RM190.

Streamyx’s subscribership, on the other hand, saw net adds weakening by 3k to 1.506m with a lower ARPU of RM86 (1Q15: RM89). As at 2Q15, 51% (or c.1.17m) 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

Raised FY15E/FY16E core NPs by 0.9%/2.0% to RM849m/RM945m, after fine-tuning.

Rating

Maintained OUTPERFORM

Valuation

Lowered our TP to RM7.33 (from RM7.80 previously) given that market appears to be undergoing a de-rating process as a result of the challenging macro and currency outlook. Our renewed TP is based on a lower targeted FY16 EV/fwd EBITDA of 7.9x (from 8.4x previously), representing a +1.5x Std Dev. above its 4-year mean (vs. +2.0x Std Dev. above its 4-year mean).

Risks to Our Call

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

Source: Kenanga Research - 26 Aug 2015