Telekom Malaysia Bhd
(June 1, RM6.99)
Maintain sell with an unchanged target price (TP) of RM6.40: Telekom Malaysia’s (TM) first quarter ended March (1QFY15) profit after tax and minority interests (Patami) declined 39% year-on-year (y-o-y) and 41% quarter-on-quarter (q-o-q) to RM128.9 million mainly due to higher operating cost, foreign exchange (forex) losses and consolidation of 55.3%-owned Packet One Networks (M) Sdn Bhd (P1).

Normalised Patami dropped 7.6% y-o-y and 51.1% q-o-q to RM171.3 million. Quarterly revenue improved 6% y-o-y to RM2.77 billion with more subscribers and upgrades to higher Internet packages.

However, 1Q revenue declined 12.1% q-o-q following flat revenue from the Internet segment together with declines in data, voice and other segments. First quarter revenue makes up 23.7% of our FY15 forecast while 1Q Patami accounts for 13.2% of our full-year estimate.

UniFi subscribers grew 1.6% q-o-q and to 757,000 in 1Q after adding 28,000 subscribers (versus 29,000 in 4QFY14). TM’s number of fixed-line customers was 0.9% q-o-q lower at 3.497 million (versus 4QFY14: 3.527 million). The decline is expected to continue gradually in the long run.

TM’s average revenue per user (Arpu) for Streamyx broadband was flat at RM89 (versus RM90 in 4QFY14). Arpu for fixed-line was flat at RM31 (versus RM31 in 4QFY14) and Arpu for UniFi was slightly lower at RM190 (versus RM192 in 4QFY14).

Following the government’s encouragement of affordable 

broadband, TM has introduced two new packages: i) RM38 a month for 1Mbps; and ii) RM179 a month for UniFi 10Mbps. As such we expect, lower Arpu in second half of 2015, which will be compensated by increased subscribers, resulting in neutral impact to overall revenue.

TM consolidated P1 into its 4QFY14 results, but earnings contribution was not significant. The management is in the midst of devising strategies and will reveal its plans later this year.

Despite results coming below expectations, we are keeping our profit forecast for FY15 and FY16 as 1Q has been a seasonally low quarter. Potential catalysts are the upcoming high-speed broadband phase 2 and suburban broadband projects that could boost UniFi subscriptions significantly.

Maintain “sell” with an unchanged TP of RM6.40 based on dividend discount model due to unattractive dividend yield and valuation after share price rallied. — JFApex Securities Bhd, June1

This article first appeared in The Edge Financial Daily, on June 2, 2015.