- We re-affirm our BUY call on Telekom Malaysia (TM), with a
higher DCF-derived fair value of RM5.90/share (vs. RM5.50/share previously),
following the release of strong 1Q12 results.
- TM reported core earnings of RM183mil (excluding net forex
gains amounting to RM67mil). This accounted for 27% of our FY12F estimates
(slightly ahead of expectations) and 25% of consensus. Normalised EBITDA of
RM785mil made up 24% of our full-year estimate.
- Core earnings grew by 50% YoY, though this was partly driven
by a lower effective tax rate given recognition of last mile tax incentives.
Normalised EBITDA growth (+8% YoY) lagged behind revenue (+11% YoY) given
slight margin pressure (-1pp) on higher maintenance cost.
- Nonetheless, a positive surprise was the strong revenue growth
(+11% YoY), which far exceeded FY12 KPI (+5%). Voice revenue surprisingly
rebounded (+3.4% QoQ, +2.6% YoY) as subscribers migrate back to telcos from diminishing
VoiP networks. Management guides for this trend to sustain in the near term.
- Unifi growth remains very strong (subs growth: +34% QoQ,).
Net addition grew from 24K/month (4Q11) to 26K/month (1Q12). Maxis’ aggressive
price strategy in its fibre broadband offering suggests increased competition ahead.
TM does not intend to compete on pricing, but rather on bandwidth
offering.
- Capex post-Public-Private Partnership (PPP) phase may be reduced,
given lower access capex which makes up 46% of HSBB capex (FY11) and 26% of
group capex. The PPP ends in FY12 after hitting 1.3mil premises (1.2mil currently).
- We raise FY12-14F earnings by 6%-7% to reflect stronger- than-expected
Unifi subscriber growth. We now assume an average 22K/month net add, which
still looks conservative – 1Q12 net add averaged 26K/month. There is further upside
if TM is able to sustain ARPU at the current level of RM182.
- TM had earlier proposed a 30 sen capital repayment, due to
be paid out in 3Q12. This amounts to an attractive dividend yield of 5.6% on
top of the normal dividend payout which yields another 3.7%. Low net
debt-to-EBITDA (0.7x) and falling HSBB capex moving forward suggest room for a
further increase in dividend payout.
Source: AmeSecurities
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