CIMB Research retains Hold call for Telekom


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 retaining its Hold call for Telekom Malaysia with an unchanged target price of RM6.10 after the release of its FY16 financial results.

It said on Thursday that TM’s FY17F enterprise value/operating free cashflow (EV/OpFCF) of 22.6 times was at a 35% premium over the Asean telco average but it was supported by decent dividend yields of 3.4-3.7% per annum in FY17F-19F. 

“Upside risk: webe turns profitable earlier. Downside risk: 50% cut is applied to headline broadband prices,” it said.

CIMB Research said it largely maintained its FY17-18F core EPS. It believes the free UniFi speed upgrades in 2017 are unlikely to negatively hit TM’s FY17-18F revenue, although they would limit an uplift in the average revenue per user (ARPU). 

Hence, it forecasts FY17F/18F core EPS growth of 3.6%/8.2%. The projections were based on revenue growth of 3.3%/4.2%, driven by fixed broadband and managed accounts businesses; and b) lower webe losses from impairment. 

“For FY19F, we forecast core EPS to fall 5.6% as we have factored in an effective 20% UniFi Home price cut,” it said.

Commenting on the FY16 results, it said FY16 core EPS fell 6.7% on-year, largely in line. 
The 4Q16 EBITDA grew 1.5% on-year (+4.3% on-quarter), in line with revenue growth. 

Despite higher depreciation, core EPS rose 2.9% on-year (+30.1% on-quarter), boosted by tax incentives. FY16 core EPS (-6.7% on-year) was 4% higher than forecast but 4% lower vs. Bloomberg consensus.

The 4Q16 dividend per share (DPS) of 12.2 sen took FY16 DPS to 21.5 sen (FY15: 21.4). The 95% payout is higher than expected as TM’s policy is the higher of 90% payout or RM700mil.

“TM’s FY17 KPI targets are 3.5-4.0% revenue growth, flat EBIT and 30% capex/sales,” it said.

CIMB Research said TM’s 4Q16 revenue rose 1.7% on-year. This was driven solely by growth in internet & multimedia (+10.3% on-year), which more than offset the drop in voice (-2.6% on-year), data (-1.2% on-year) and other (-0.6% on-year) revenues. 

On-quarter, revenue rose 10.7%, mainly due to spikes in voice, data and other revenue on the back of stronger seasonality.

UniFi and Streamyx ARPUs continued to rise in 4Q16.

Internet & multimedia revenue sustained healthy growth of 10.3% on-year (+3.5% on-quarter). 

On-quarter UniFi net adds were slightly higher at 28,000 (3Q16: +21,000) as installations picked up after Ramadan. 

UniFi ARPU grew 2% on-quarter (+6% on-year) to a new high of RM201 in 4Q16 on upselling initiatives, with 79% of subs on 10Mbps and above (3Q16: 75%) and higher subscription to premium TV channels. 

Streamyx users fell a further 1.9% on-quarter (net loss: 27,000) due to migration to UniFi, while ARPU grew a stronger 2% on-quarter (+3% on-year) to RM92.

EBITDA margin was largely flat on-year (-1.8% pts on-quarter) at 30.4% in 4Q16. As a percentage of sales, staff cost (+0.8%) and bad debts (+0.3%) were higher but offset by the decline in other costs. 

“We project margin to ease 0.6% pts on-year to 31.1% in FY17 due to increased marketing and opex related to the full year operation of webe, as well as higher customer project cost,” it said.

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