Market observers noted that the quantum of the fall in its shares had slowed despite the negative news of the surprise net loss that had been reported in its quarterly results.
KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Telekom Malaysia and with a lower target price of RM6.10 compared with RM6.40 earlier.
It said on Wednesday the FY17 core earnings per share (EPS) missed expectations due to weaker-than-expected earnings before interest, tax, depreciation and amortisation (EBITDA) margin and higher effective tax rates
Telekom’s revenue fell 1.1% on-year as lower voice, other services and data was partly offset by internet & multimedia growth.
“Strongest unifi net adds (+64,000) since 2Q12. EBITDA margin fell 1.6% pts on-year to 28.8%, its lowest ever, due to unifi mobile network expansion. The latter will keep margin suppressed in FY18F.
“We see muted core EPS growth of 1.8% (EBITDA: +0.7%) for FY18F, as pick-up in revenue growth will be offset by higher cost. We maintain our Hold call with a 5% lower target price of RM6.10,” it said.
CIMB Research said that 4Q17 EBITDA eased 6.4% on-year (+3.7% on-quarter) on lower revenue and margin.
Core EPS fell a steeper 17.7% on-year (+9.1% on-quarter) from higher effective tax, partly buffered by lower depreciation.
“FY17 core EPS was 6% below our forecast (Bloomberg consensus: in line). Key variances were lower-than-expected EBITDA margin and higher effective tax rates. 4Q17 DPS was 12.1 sen (FY17: 21.5 sen, 94% payout),” it said.
CIMB Research said Telekom’s FY18 KPI targets are 3.54.0% revenue growth, flat EBIT and 25%-30% capex/sales (FY17: 22.8%).
It pointed out that 4Q17 revenue fell 1.1% on-year on lower voice (-6.7% on-year), other services (-4.3% on-year) and data (-2.3% on-year), partially offset by continued growth in internet & multimedia (+7.0% on-year).
Data revenue was impacted by TM One’s re-organisation, lower indefeasible rights of use sales and weaker public sector ICT spending. Other services were affected by fewer customer projects.
On-quarter, revenue rose 8.8% as data/other services spiked (+12.8%/ 31.3% on-quarter) on stronger seasonality and indicate potential recovery in demand.
“unifi net adds jumped to 64,000 (3Q17: 55,000, 4Q16: 28,000), its highest since 2Q12, driven by promotions and expansion in HSBB ports. This was more than offset by 81,000 (-6.3% on-quarter) drop in Streamyx subs, some of which churned to other fixed/mobile broadband providers.
“Overall, broadband subs fell 17,000 (-0.7% on-quarter). unifi ARPU eased for the third quarter in a row, down 1% on-quarter (-2% on-year) to RM197, on take-up of lower-priced plans,” it said.
CIMB Research said Telekom’s 4Q17 EBITDA margin slid 1.6% pts on-year (-1.4% pts on-quarter) to 28.8%, its lowest ever.
This was largely due to higher network, maintenance and other operating costs (higher licensing fees and LTE site rental), in line with unifi mobile’s network expansion. These were partly cushioned by lower manpower (ex-MESRA cost) and supplies and materials cost.
“For FY18, TM says EBITDA margin will remain suppressed by higher networkrelated cost, partially buffered by improved cost efficiency elsewhere (e.g. manpower).
“We cut FY18/19F core EPS by 5.3%/3.6% (EBITDA: 3.8%/2.0%) to factor in lower EBITDA margin. We now forecast FY18F core EPS to grow by only 1.8% (EBITDA: +0.7%) as a pick-up in revenue growth is largely offset by higher mobile-related opex.
“ FY19/20F core EPS should grow a stronger 11.2%/11.5% on improved EBITDA margin and lower unifi mobile losses. We forecast flat DPS of 21.5 sen in FY18F and 23.4/26.1 sen in FY19/20F, largely based on a 90% payout,” CIMB Research said.
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