This article first appeared in The Edge Financial Daily on November 28, 2018
Telekom Malaysia Bhd
(Nov 27, RM2.25)
Maintain hold with a downgraded target price (TP) of RM2.50: Telekom Malaysia Bhd (TM) posted a net loss of RM175.6 million for the third financial quarter of 2018 (3QFY18) compared to a net profit of RM211.8 million for 3QFY17 following an impairment loss of almost RM1 billion on wireless and fixed network assets. Excluding the impairment, normalised profit after tax and minority interests (Patmi) rose 31% year-on-year (y-o-y) to RM266.4 million.
Its revenue added 0.2% y-o-y to RM2.95 billion for 3QFY18 as higher contributions from the Internet (+2% y-o-y) and others (+12% y-o-y) were able to fully offset declines in data (-5% y-o-y) and voice (-5% y-o-y).
Due to the impairment, a net loss of RM175.6 million was reported for 3QFY18 against a net profit of RM102 million for 2QFY18, while normalised Patmi rose 71% q-o-q. Quarterly revenue gained 0.3% q-o-q following mixed performances of different segments (Internet: -5%; voice +8%; Data: +8%; and others: -6%).
Its 3QFY18 normalised earnings before interest, taxes, depreciation and amortisation (Ebitda) margin was higher at 32% from 28% for 2QFY18, while the normalised Patmi margin climbed to 9% from 5.3% for the previous quarter.
Total broadband subscribers dropped 2.7% y-o-y and 0.7% q-o-q to 2.29 million as unifi subscribers grew 19% y-o-y and 4% q-o-q to 1.26 million but was unable to compensate for declines in Streamyx subscribers which declined 20% y-o-y and 6% q-o-q to 1.03 million.
A higher average revenue per user (Arpu): TM’s Arpu for Streamyx broadband was lower at RM87 (versus RM88 for 2QFY18), while Arpu for unifi increased to RM193 versus RM190 for 2QFY18.
Cash reserves increased to RM2.2 billion from RM1.6 billion for 2QFY18. As a result, gross debt/Ebitda improved to 2.5 times (from 2.59 times for 2QFY18).
TM has reduced its dividend policy of RM700 million or 90% of normalised Patmi, whichever is higher, to 40% to 60% of Patmi depending on the earnings performance, financial conditions, reserve levels and capital commitments.
Its 9MFY18 normalised Patmi of RM527.5 million was within expectations after having accounted for 88% of our full-year estimate, while 9MFY18 revenue was also within expectations after achieving 75% of the FY18 forecast.
We have kept our revenue and earnings per share forecasts for FY18 and FY19.
Due to the reduced dividend policy, we have downgraded the stock to “hold”, with a lower TP of RM2.50 (previously RM3.90) based on FY19 forecast dividend discount model valuation. The stock offers a dividend yield of 4.4%. — JF Apex Securities, Nov 27