The lower net profit is due to foreign exchange losses on borrowings of RM96.5mil in the current period.
KUALA LUMPUR: CIMB Equities Research is maintaining its Hold call on Telekom Malaysia (TM) with a higher target price of RM6.50 compared with the previous target of RM6.10.
It said on Wednesday its discounted cashflow based fair value for TM is RM6.10 in the scenario where there is an effective 20% cut in UniFi Home prices and RM6.90 in the scenario of no price cuts.
“We move our target price to the mid-point, i.e. RM6.50, as there is a chance the regulator may allow TM to comply with Budget 2017's mandate through other measures other than a direct price cut.
“Valuation is supported by decent 3.2%-3.5% yields in FY17F-19F. Upside risk: webe turns profitable earlier. Downside risk: 50% headline broadband price cut,” it said.
On the first quarter results ended March 31, 2017, the research house said TM’s 1Q17 earnings before interest, tax, depreciation and amortisation (Ebitda) was flat on-year (-2.8% on-quarter) on the back of lower margins.
“This is in line at 24.8% of our FY17 forecast (Bloomberg consensus: 24.4%). Core EPS rose 13.2% on-year (-14.9% on-quarter), mainly due to lower i) accelerated depreciation/write-off of WiMAX assets, ii) effective tax rate, and iii) bad debts. This formed 26.1% of our FY17 forecast (Bloomberg consensus: 27.5%), largely within expectations,” it said.
CIMB Equities Research said the 1Q17 revenue rose 3.8% on-year. This was driven mainly by growth in internet & multimedia (+8.4% on-year), other (+12.4% on-year) and data (+3.3% on-year) revenues, which more than offset the drop in voice revenue (-5.3% on-year).
On-quarter, revenue fell 8.4% due to weaker seasonality, which was partly buffered by continued growth in the internet & multimedia (+1.9%) business.
UniFi net adds were largely sustained at 30,000 (4Q16: +28,000), supported by rollout into new areas and partly driven by upgrades from Streamyx subs.
After four quarters of gains, UniFi average revenue per user (Aarpu) held steady on-quarter (+5% on-year) at RM201 in 1Q17, with 81% of subs on 10Mbps and above (4Q16: 79%) and higher IPTV content revenue.
CIMB Research also said Streamyx users fell a further 2.1% on-quarter (net loss: 30,000), while ARPU was down 2% on-quarter (+1% on-year) to RM90. Ebitda margin fell 1.1 percentage points on-year (+1.9 percentage points on-quarter) to 32.3% in 1Q17.
This was due to higher costs across the board, except for marketing expenses (lower marketing and discontinuation of its WiMAX service since December 2016) and bad debts (improvement in collection activities).
“With a possible ramp-up in marketing activities in the remaining quarters and normalisation in bad debt provisions, we believe TM’s margins are on track to meet our FY17 forecast of 31.3%.
“We made some slight revisions to our FY17F-19F core EPS, solely due to book-keeping adjustments post-release of TM’s 2016 annual report. We expect decent FY17F/18F core net profit growth of 3.2%/9.0% based on: a) revenue growth of 2.1%/1.7% (exwebe); and b) lower webe losses from lesser impairment. Core net profit falls 5.1% in FY19F, as we factor in an effective 20% broadband price cut,” it said.
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