Telekom 9M results in line as Q4 earnings may be weaker

Telekom Malaysia's share price has come under pressure after the government said the price of broadband would be reduced by 25% by year end.

KUALA LUMPUR: CIMB Equities Research described Telekom Malaysia’s 9M18 results as largely in line as the 4Q18F earnings may be weaker. 

It said on Tuesday Telekom had also cut FY18 dividend payout to 40%-60% of net profit.

“The 3Q18 revenue was steady on-year as higher Internet/other revenue was offset by weaker voice/data revenue. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin was up on-year,” it said.

CIMB Research maintained its Hold call with an unchanged discounted cashflow-based target price of RM2.50. This was 18 sen above the last traded price of RM2.32.

It said the 3Q18 EBITDA rose 4.7% on-year  (+13.1% on-quarter) on higher margins. Core EPS jumped 30.9% on-year  (+71.0% on-quarter), boosted by a small tax credit (3Q17: 29% effective tax rate). 

The 9M18 core EPS was at 83%/87% of its/Bloomberg consensus FY18F forecasts (EBITDA:

“We deem this largely in line as 4Q18F earnings may be weaker due to broadband price revisions and normalisation of tax rates. Telekom cut its FY18 dividend payout to 40-60% of PATAMI (previously: RM700m or 90% payout, whichever higher),” it said.

The 3Q18 revenue was stable on-year  and on-quarter on higher Internet & multimedia  which were largely offset by lower voice and data revenue. 

After five quarters of declines, unifi broadband ARPU rose 2% on-quarter due to new sign-ups for higher priced plans. unifi net adds were healthy at 44,000k on-quarter (+3.6%), while Streamyx subs fell a steeper 60,000 (-5.5%) on-quarter. Overall broadband subs declined 16,000 (-0.7%) on-quarter.

Telekom’s 3Q18 EBITDA margin increased 1.4% pts on-year  to 31.6% while on-quarter, it rose 3.6% pts due to lower: 1) direct (decrease in network-related costs and cost reduction initiatives), 2)
maintenance and 3) marketing costs. 

These were partly offset by the increase in supplies and material and other operating costs.
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