HLIB Research keeps Hold call for Telekom Malaysia

However, smaller accelerated depreciation associated to Webe and leaner cost structure lifted Telekom's core net profit

KUALA LUMPUR: Higher-than-expected cost driven by marketing as well as supplies and materials costs, caused Telekom Malaysia Bhd’s (TM) to deliver below-expectations core net profit of RM578mil for the first nine months of financial year 2016 (9MFY16), according to Hong Leong Investment Bank (HLIB) Research.

It said on Monday overall revenue fell by 4%, impacted by the dismay showing by all other products, quarter-on-quarter. However, smaller accelerated depreciation associated to webe and leaner cost structure lifted core net profit by 24%.

Year-on-year, TM’s top line growth was flattish as growths in internet and other revenues were offset by declines from voice and data. Core earnings fell 9%, impacted by larger cost base and accelerated depreciation from webe.

HLIB Research highlighted that year to date, TM’s revenue rose 3% due to higher contributions from all products which were more than sufficient to offset the fall in voice-related revenue. 

“As migration to long term evolution (LTE) gained pace, core net profit actually fell by 11% attributable to accelerated depreciation associated to webe,” said the research house.

HLIB reiterated its “Hold” call although it lowered its target price to RM5.93 reflecting the downward earnings revision.

Meanwhile, RHB Research expects TM's near-term earnings growth to continue to be powered by data demand, such as the broadband rollout of High Speed Broadband 2 (HSBB2) and Sub Urban Broadband, greater demand of higher speeds, as well as greater bandwidth sales.

It said the increase in indefeasible rights of use (IRU) sales and higher domestic Ethernet, data revenue also recorded robust momentum, where 9MFY16 contributions posted 9.8% year-on-year growth.

“We believe that increasing product convergence propositions such as the IPTV contents, over-the-top (OTT) applications and webe could translate into greater earnings and subscriber quality over the long run,” said RHB Research in its report.

The research house said TM expects its capital expenditure to trend down from 2017 onwards.

RHB Research maintained its “buy” recommendation on TM and target price of RM7.90.