KUALA LUMPUR: CIMB Equities Research has lowered the target price for Telekom Malaysia from RM6.80 to RM6.40 – but still 6.7% above the last traded price of RM6 – after the announcement of its third quarter results ended Sept 30, 2017.
It said on Thursday that previously, its target price was based on the mid-point between the scenarios of an effective 20% cut in unifi Home prices (RM6.20) and no price cuts (RM7.40).
“Although we now assume no price cuts, we have also factored in slower earnings before interest, tax, depreciation and amortisation (Ebitda) margin expansion over the remaining discounted cashflow period. Upside risk: unifi mobile turns profitable earlier. Downside risk: more intense broadband competition,” it said.
CIMB Research said 3Q17 Ebitda eased 5.8% on-year (-1.4% on-quarter) on lower margins as opex rose faster than revenue.
Core EPS fell a milder 1.9% on-year (-2.2% on-quarter), as the lower Ebitda was partly cushioned by lower depreciation and effective tax.
“Results were largely within expectations, with 9M17 core EPS forming 72.5%/74.8% of our/Bloomberg consensus’ FY17 forecasts (EBITDA: 73.8%/70.6%),” it said.
Better revenue as internet & multimedia growth picks up 3Q17 revenue rose 0.6% on-year on higher internet & multimedia (+9.4% on-year) which was partially offset by lower voice (-1.0% on-year), data (-4.2% on-year) and other revenue (-6.1% on-year).
The fall in data was due to lower indefeasible rights of use and domestic lease revenue, while other services was affected by lower universal service provider revenue.
On-quarter, revenue declined 1.3% as the drop in data and other revenue was partly buffered by stronger voice (+1.3% on-quarter) and internet & multimedia (+2.3% on-quarter) revenue.
It said unifi net adds jumped to 55,000 (2Q17: +28,000), its highest since 4Q12, due to the re-launch of the more affordable unifi Lite plan (10Mbps, RM129/month) and other marketing campaigns, which drove upgrades from existing Streamyx subs.
As a result, the latter fell a steep 64,000 (-4.7% on-quarter), which was also partly due to churn to webe and other fixed/ mobile broadband providers.
“Overall, broadband subs were down 9,000 (-0.4% on-quarter). Unifi ARPU fell 1% on-quarter (+1% on-year) due to take-up of lower-priced plans.
Ebitda margin dropped 2.1% pts on-year (steady on-quarter) to 30.2% in 3Q17. This was mainly due to higher network operations and maintenance works, other operating costs (higher licensing fees and unifi mobile site rental with the expansion in LTE sites) and bad debts.
These were partly cushioned by lower manpower and supplies and materials cost.
“Ebitda is largely kept for FY17/18F (core EPS: +3.8%/-1.9%) but raised 4.5% in FY19F (core EPS: +14.0%) after removing an effective 20% unifi Home price cut.
“We think TM can comply with Budget 2017's mandate via offering more affordable plans for specific segments (students, online SMEs).
“Post-revision, we see FY17F Ebitda down 2.1% on muted revenue growth but core EPS up 8.3% due to lower WiMAX asset write-offs. We expect core EPS to rise a mild 1.1% in FY18F, then a stronger 9.2% in FY19F,” it said.