JP APEX Securities on Telekom Malaysia 4Q18 Financial Results

Analyst Comment by JP APEX Securities on Telekom Malaysia 4Q18 Financial Results:

  • Lower earnings – TM’s reported net profit dropped 75% YoY to RM69.7m in 4Q18 due to higher finance cost while normalized PATAMI declined 54% YoY to RM104.9m.
  • Flat revenue – 4Q18 revenue dropped 3.5% YoY to RM3.09b as Voice (+1% YoY) failed to offset declines in Internet (-1.6% YoY), Data (-7% YoY) and Voice (-8% YoY).
  • Lower QoQ – 4Q18 reported net profit of RM69.7m came against a net loss of RM175.6m in 3Q18 due to an impairment of almost RM1b in 3Q18. Normalised PATAMI declined 61% QoQ. Quarterly revenue grew 5% QoQ following improved performances in different segments (Internet -2%, Voice +8%, Data +11% and Others +8%).
  • Drop in subscribers – Total broadband subscribers dropped 4.2% YoY and 2.3% QoQ to 2.23m as UniFi subscribers grew 15% YoY and 3% QoQ to 1.3m but was unable to compensate for decline in Streamyx subs which declined 23% YoY and 9% QoQ to 0.94m.
  • Lower ARPU– TM’s Average Revenue Per User (ARPU) for Streamyx broadband was flat at RM88 (vs RM87 in 3Q18) while ARPU for UniFi decreased to RM184 vs RM193 in 3Q18.
  • Improved gearing – Cash reserves increased to RM2.8b from RM2.2b in 3Q18. As a result, net debt/EBITDA improved to 2.4x (from 2.59 in 3Q18).
  • Slashed dividend payout – TM declared a dividend of 2 sen/share after reducing its dividend policy of RM700m or 90% of normalized PATAMI, whichever higher, to 40%-60% of PATAMI depending on earnings performance, financial conditions, reserve level and capital commitments.

Earnings Outlook/Revision

  • Within expectation – FY18 normalized PATAMI dropped 27% YoY to RM632.4m but was within expectation after having accounted for 106% of our full year estimates while twelve months’ revenue was also within expectation after achieving 102% of our FY18 forecast.
  • Estimates maintained – We are keeping our revenue and EPS forecast for FY19 and introduce our FY20 forecast.

With the reduced dividend policy, we have switched our valuation to DCF from DDM. Maintain HOLD with a higher target price of RM3.06 (previously RM2.50) based Lee Cherng Wee on WACC of 11% and terminal growth of 0%. Potential catalysts could come from ongoing cost optimization and sale of non-core assets such as its subsidiary VADS and office buildings.

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