INVESTMENT HIGHLIGHTS

• 4Q17 normalised earnings trended higher sequentially, inline with the grow in revenue
• As expected, FY17 normalised earnings grew marginally supported by stronger revenue from unifi
• Unifi customer grew to 1.1m customer, representing 48.3% of total broadband customer
• Maintain BUY on TM with an unchanged target price of RM7.72

4Q17 normalised earnings trended higher. Telekom Malaysia Bhd’s (TM) 4QFY17 normalised earnings came in at RM222.0m. This translates into an increase of +9.1%qoq as compared to 3Q17. The improvement in earnings was mainly driven by stronger 4Q17 revenue growth of +8.8%qoq. Higher revenue was recorded was recorded across all services.

FY17 normalised earnings came in within expectation. Cumulatively, TM’s FY17 normalised earnings improved by +1.8%yoy to RM863.2m from RM847.9m as compared to the previous year corresponding period. This was premised on resilient revenue performance (+0.2%yoy) and slight expansion in profit margin. All in, the results came in within our and consensus expectations, accounting for 100.9% and 99.8% of full year FY17 earnings estimates respectively.

Broadband. As at 4Q17, the broadband customer base remained resilient at 2,333k customers (4Q16: 2,370k customers). Nonetheless, TM managed to grow its Unifi customer base to 1,126k (+18.7%yoy). The Unifi customer base constitutes 48.3% of total broadband customer base in 4Q17 (4Q16: 40.0%). In addition, approximately 98% of the Unifi customers are on broadband packages of at least 10mbps.

Capital expenditure (capex). TM reduced its 4Q17 capital spending by -32.4%yoy to RM1,122m. This translates into capex-to-revenue ratio of 35.1% (4Q16: 51.3%). Cumulatively, the group’s FY17 capex came in -16.9%yoy lower to RM2,756m or capex-to-revenue ratio of 22.8% (vs FY16: 27.5%). The lower capex utilisation was mainly led by internal re-prioritisation of projects. Breakdown on FY17 capex includes core network (34%), access (42%) and support systems (24%). For FY18, management guided that capex-to-revenue ratio is expected to trend higher towards 30%.

Source: MIDF Research - 28 Feb 2018