Telekom Malaysia In line with expectations

Period     3Q12/9M12

Actual vs. Expectations     The 9M12 core NP of RM593m came in within expectations and accounted for 74.4% and 73.2% of ours and the street’s full-year estimates respectively.

Dividends     No dividend was declared during the quarter. For FY12, we expect TM to declare a total of 50.4 sen in dividends (20.4 sen in annual dividend + 30.0 sen in special dividend).

Key Result Highlights     YoY, the 9M12 revenue improved by 7.2% to RM7.2b, driven by the higher contribution from all its segments, i.e. Data (+6%), Internet (+20%) and other telco related services (+13%) but this partially offset by the relative flatt Voice (-1%) division. The reported EBITDA grew by 1.8% to RM2.3b although its margin dipped by 1.7pp to 32.0% due mainly to a higher direct and maintenance cost. Core NP 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 RM128.4m tax incentives as of 9M12.

QoQ, the turnover was lower by 2% due to weaker contribution from the other telco related services (-17%) and voice (-4%) segments. The EBITDA margin dipped to 31.4% (vs. 32.3%) to RM751m as a result of a higher materials cost. Core NP, however, fell by 16% due to the higher depreciation and finance costs and lower tax incentives.

Unifi’s subscribers grew by 11% QoQ to 427k at the end of 9Q12 with a blended ARPU of RM180. To date, Unifi’s subscribers have reached more than 462k on the back of 1.32m premises covered in 94 exchange areas. This translates into a take-up rate of 35%. Streamyx subscribership on the other hand, saw its net adds reduced by 26k to 1.6m (ARPU was maintained at RM79).

Outlook     No changes to TM’s FY12 headline KPIs, which management targeted to record a 5.0% YoY growth in revenue with a 32% EBITDA margin.

Change to Forecasts     Raised our FY12 (+1.6%), FY13 (+1.4%) and FY15 (+1.6%) core NPs after fine-tuning our numbers.

Rating     Maintain OUTPERFORM

Valuation     We have lowered our TM’s TP to RM6.25 (from RM6.45 previously) based on a lower targeted +1.5x standard deviation (from a +2SD previously) due to the higher risk of more regulation headwinds head), which implied a FY13 EV/forward EBITDA of 7.3x.

Risks      Regulation risk and persisting margin pressure.

Source: Kenanga