KEY INVESTMENT HIGHLIGHTS

• 3QFY19 normalised earnings improved by +8.0%yoy to RM287.7m in view of the ongoing cost optimisation exercise

• However, 3QFY19 revenue contracted by -3.2%yoy, dragged by the unifi and TM One segments

• Cumulative 9MFY19 financial performance progressed by +53.7%yoy to RM810.9m, in-line with our expectations

• Yet to announce any dividend at this juncture

• Maintain Neutral with an unchanged TP of RM3.54

Quarterly revenue continues to trend downwards. Telekom Malaysia Bhd’s (TM) 3QFY19 normalised earnings increased by +8.0%yoy to RM287.7m. The improvement in earnings was mainly led the ongoing cost optimisation under the Performance Improvement Programme 2019. The profit margin expanded to 10.1% from 9.0% as at 3QFY18. Nonetheless, 3QFY19 revenue came in -3.2%yoy lower to RM2,852.6m in view of lower revenue contribution primarily from unifi (-10.1%yoy) and TM One (-4.0%yoy).

In-line with expectations. The advancement in 3QFY19 normalised earnings led to higher 9MFY19 normalised earnings of RM810.9m (+53.7%yoy). Note that the bulk of the exceptional items pertained to impairment on the copper network and foreign exchange losses. All in, the group’s 9MFY19 financial performance came in within ours but above consensus expectations, accounting for 78.6% and 88.2% of full year FY19 earnings estimates respectively.

Opex/revenue ratio improves further. TM’s 9MFY19 total cost came in at RM7,282m, a decline of -19.2%yoy. This led to healthier opex/revenue ratio of 86.7% (9MFY18: 103.3%). The reduction in cost mainly stem lower direct cost (-14.7%yoy) and other opex (-30.1%yoy).

Broadband. As at 3QFY19, the total broadband customer base dwindled futher by -5.6%yoy to 2.59k customers. This was mainly caused by the reduction in Streamyx customers base to 786k customers (-23.3%yoy). On the contrary, unifi customer base expanded to 1,373k customers (+8.9%yooy) as more customers are moving up the value chain with the convergence offerings.

Capital expenditure (Capex). TM’s 3QFY19 capex came in significantly lower at RM286m (-52.7%yoy). This led to cumulative 9MFY19 capex of RM736m (-44.0%yoy), in-line with the management guidance. The lower capital spending translates into lower capex-torevenue ratio of 8.1%. 

Impact to earnings. No change to our earnings estimates at this juncture.

Source: MIDF Research - 27 Nov 2019