INVESTMENT HIGHLIGHTS

• 1Q17 normalised earnings remained stable at RM229.8m, in-line with our estimate

• Higher mix of UniFi subscribers lifted the ARPU to more than RM200/mth

• Higher capital spending to build network access and improve the support systems

• Maintain BUY on TM with a higher target price of RM7.77 per share

Meeting estimates. Telekom Malaysia Bhd’s (TM) 1Q17 normalised earnings amounted to RM229.8m. This represents an increase of +13.2%yoy. The improvement in earnings was mainly supported by higher 1Q17 revenue contribution as well as healthier profit margin. All in, the results came in within ours and consensus’ expectations, accounting for 25.5% and 27.1% of full year FY17 earnings estimates respectively

Broadband. As at 1Q17, the customer base remained relatively stagnant at 2,370k customers. However, the proportion of Unifi customers has increased to 41.3% from 37.1% in 1Q16. The shift in customer composition has also lifted 1Q17 ARPU higher to RM201/mth from RM192/mth previously. In addition, more than 80% of the Unifi customers are on broadband packages of at least 10mbps

Capital expenditure (capex). TM’s 1Q17 capex amounted to RM352m. The increase in capital spending of +10.7%yoy lead to higher capex-to-revenue ratio of 11.9% (1Q16: 11.1%). Nonetheless, this was in-line with the network expansion for broadband and LTE. More capex was allocated to build network access and improve the support systems.

Impact. We are keeping our earnings estimates unchanged at this juncture.

Target price. We are rolling forward our valuation based year to FY18 and derived a new target price of RM7.77

per share based on based on Dividend Discount Model valuation methodology.

Maintain BUY. Despite the challenging market environment, we are comforted by the fact that UniFi’s customer base and ARPU continue to increase at a steady pace. Moving forward, we view that the progressive growth in TM’s broadband customer base would be further driven by the HSBB phase 2 and SUBB projects. Coupled with generous capex undertaking, TM would be able to remain committed to its pledge of providing higher speed broadband access more affordable to the masses. On the mobility segment, the group’s target to launch Webe’s new prepaid plan in 2H17 remains intact. We opine that the ‘quad-play’ offering would further strengthen TM’s position in the telecommunication industry. All factors considered, we reiterate our BUY recommendation on TM

Source: MIDF Research - 24 May 2017