Period

3Q15/9M15

Actual vs. Expectations

9M15 core PATAMI of RM591.2m (flat YoY) came in within expectations and accounted for 70%/67% of our/street’s full-year estimates. The core PATAMI was computed after removing the forex gain on international trade settlement of RM120.4m, RM0.5m impairment losses, and RM153.3m unrealised forex loss on long-term loan. Note that the group’s 9M accounted for c.62%-72% of the full-year results for the past four financial years.

The flattish core PATAMI YoY growth in 9M15 was mainly due to the forex exchange losses from borrowings and consolidation of P1 despite its revenue climbing 5.7% YoY. P1 contributed RM176.7m turnover in 9M15 but suffered a loss of RM185.5m at the EBIT level. Stripping off P1 contribution, turnover in 9M15 would have grown 3.5% YoY (to RM8.36b) with higher normalised EBIT of RM1.06b (11.8% YoY).

Dividends

No dividend was declared during the quarter.

Key Results Highlights

YoY, 9M15 revenue climbed by 6% to RM8.5b, driven by the higher segmental contribution from Internet (+16% to RM2.5b), data (+5% to RM1.9b) and voice (+2% to RM2.6b) but partially offset by the other telecom related services contribution (-1%). EBIT improved by 3.5% to RM997m due to higher turnover and steady OPEX where its percentage cost of revenue was stable at 88.4% (vs. 88.2% a year ago). Stripping off the forex gain of RM128m, its normalised EBIT will be lowered to RM870m (-7.8%).

QoQ, 3Q15 turnover was up by 3% on the back of higher voice and data revenue. Group’s reported EBIT soared by 47% to RM449m due to higher revenue and lower OPEX. Stripping off some non-operational items, in particular, forex gains from the international trade, its normalised EBIT was up by 10.3% at RM329m. Its core PATAMI, meanwhile, dipped by 9% to RM200m, no thanks to the higher effective tax rate (47.8% vs. 28.9% in 2Q15 as TM have no intention to utilise the tax benefit from P1 in the near-term. Management also guided its effective tax rate will be higher than the statutory rate over the next 12-24 months).

Unifi’s subscribers grew by 1.4% QoQ (or 11k net adds) to 793k at the end of 3Q15, representing a take-up rate of c.45%. The low double-digit subscribers net gains in 3Q15 which marked the worst quarterly net adds since 4Q10, suggest that the lowhanging fruits are diminished. Its blended ARPU, however, inched RM2 to RM192 thanks to upselling and higher IPTV revenue.

Streamyx’s subscribership, on the other hand, saw net adds weakening by 4k to 1.501m with a higher ARPU of RM87 (2Q15: RM86). As at 3Q15, 53% (or c.1.22m) TM’s total broadband customers were subscribed to 4Mbps and higher packages.

Outlook

TM is maintaining its headline KPIs for FY15 consisting revenue and normalised 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 our FY15E/FY16E core NPs by 0.9%/1.3% to RM857m/RM958m, after lowering the maintenance and depreciation costs but raised the effective tax rate to 35% (vs. 24% previously).

Rating

Maintained OUTPERFORM

Valuation

Maintained TP at RM7.33 based on a targeted FY16 EV/Fwd. EBITDA of 7.8x, representing an unchanged +1.5x Std. Dev. above its 5-year mean.

Risks to Our Call

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

Source: Kenanga Research - 27 Nov 2015