KUALA LUMPUR: CIMB Equities Research expects Telekom Malaysia Bhd's 4Q16F revenue to rise 10%-12% on-quarter (1%-2% on-year) due to seasonally-stronger revenue from data services and ICT projects.However, the research house noted on Wednesday that EBITDA margin could ease one to two percentage points on-quarter to 31% due to higher marketing cost (seasonality, webe), normalising bad debts and higher ICT project-related cost.
“We project core EPS growth of 13-15% on-quarter (-7% to -9% on-year), driven by EBITDA growth and tapering of webe’s depreciation/impairment. Based on 90% payout, we forecast final dividend per share of 10 sen (FY16F: 19 sen to 20 sen),” it said.
CIMB Research cut core EPS by 7.5% in FY16F but raised EPS by 0.9%/1.7% in FY17F/18F for lower depreciation, partly offset by higher taxes. Post-revision, it expects FY16F core EPS to fall 10.6% yoy due to greater webe losses and interest cost.
“We forecast FY17F/18F core EPS growth of 8.8%/7.8% based on: a) revenue growth of 2.5%/2.2% (ex-webe), with solid revenue growth for managed accounts, b) lower webe losses from impairment,” it said.
The research house does not expect the speed upgrades for UniFi Home subs to incur high opex/capex as TM’s ports are already 100Mbps-capable and only a small group of subs will require equipment upgrades.
“Based on our external sources, Streamyx and existing 100Mbps UniFi subs will not receive speed upgrades (for technical reasons) but will get free HyppTV content or a RM10 discount if they subscribe to webe.
“We expect this to lower subs’ demand for upgrades to higher speeds, limiting UniFi ARPU uplift in FY17F-18F,” it said.
“We believe the best-case scenario is that TM meets the Budget 2017 proposal by launching an entry-level package or offering further speed upgrades.
“To be prudent, our base-case scenario assumes that the 50% price cut is applied to the connectivity portion of UniFi Home packages, effectively lowering FY19F ARPU by 20%.
“In our worst-case scenario, UniFi Home plan prices will be cut by 50% but we think this is unlikely to occur.
“Maintain Hold on TM with 9% lower DCF-based target price of RM6.10 (WACC: 7.2%), after factoring in an effective 20% cut in UniFi Home ARPU in FY19F onwards.
“TM’s FY17F EV/OpFCF of 20.1 times is at a 21% premium over the Asean telco average but is supported by decent dividend yields of 3.2%-3.8% p.a. in FY16F-18F. Upside risk: webe turns profitable earlier. Downside risk: 50% cut is applied to headline broadband prices,” said CIMB Research.