Kenanga Research maintains Outperform on Telekom Malaysia, lower target price

KUALA LUMPUR: Kenanga Investment Research is maintaining its Outperform on Telekom Malaysia but lowered its target price to RM6.25 from RM6.45 previously.

The research house said the lower target price was based on a lower targeted +1.5 times standard deviation (from a +2SD previously) due to the higher risk of more regulation headwinds ahead), which implied a FY13 EV/forward EBITDA of 7. times.

Kenanga Research said the nine-months FY2012 core net profit of RM593mil came in within expectations and accounted for 74.4% and 73.2% of its and the street's full-year estimates respectively.

"For FY12, we expect TM to declare a total of 50.4 sen in dividends (20.4 sen in annual dividend and 30.0 sen in special dividend)," it said.

It said on-year, TM's 9M12 revenue improved by 7.2% to RM7.2bil, driven by the higher contribution from all its segments, that is data (+6%), internet (+20%) and other telco related services (+13%) but this partially offset by the relative flat voice (-1%) division.

Kenanga Research added the reported EBITDA grew by 1.8% to RM2.3bil although its margin dipped by 1.7 percentage points to 32.0% due mainly to a higher direct and maintenance cost.

Core net profit rose by 50.1% to RM593m due to the higher turnover and a lower effective tax rate as a result of the recognition of deferred tax income on unutilised tax incentives. TM has received a total of RM128.4mil tax incentives as of 9M12.

On-quarter, the turnover was lower by 2% due to weaker contribution from the other telco related services (-17%) and voice (-4%) segments.

Kenanga Research said the EBITDA margin dipped to 31.4% (versus 32.3%) to RM751mil as a result of a higher materials cost. Core net profit, however, fell by 16% due to the higher depreciation and finance costs and lower tax incentives.

As for Unifi, its subscribers grew by 11% QoQ to 427,000 at the end of 9Q12 with a blended ARPU of RM180. To date, Unifi's subscribers have reached more than 462,000 on the back of 1.32mil premises covered in 94 exchange areas. This translated into a take-up rate of 35%, it said.

Kenanga Research said Streamyx subscribership on the other hand, saw its net adds reduced by 26,000 to 1.6mil (ARPU was maintained at RM79).

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