TM (4863) : Telekom Malaysia - Weaker revenues all across
Target RM6.00 (Stock Rating: REDUCE)
TM’s 3Q14 core net profit fell 10.5% qoq (-29.1% yoy) due to lower revenues across all business segments. 9M14 earnings was at 70% of our and 66% of consensus FY14 estimates. Results were largely in line as we expect a stronger 4Q14 but below consensus expectation. As expected, no dividends were declared for 3Q. We keep our FY14-16 earnings forecasts, which factors in dilution from P1 and 50% government grant for HSBB-2. Our DCF-based target price remains at RM6.00 (WACC: 8.0%). Key de-rating catalysts are slowing broadband business growth and potential disappointment from its P1 acquisition. Its FY14-16 dividend yields of 2.8-3.3% are also unattractive vs. telco peers. Maintain Reduce. For Malaysian telcos, we prefer Axiata Group.
Internet revenues down due to Streamyx cleanup
Internet revenues fell 1.8% qoq (+4.1% yoy) in 3Q14 due to the cleanup of 90k delinquent Streamyx accounts, which resulted in net subscriber loss of 65k. For UniFi, net addition picked up slightly qoq to 27k (2Q14: 20k, 3Q13: 30k) due to more aggressive selling activities. The pace of UniFi net addition could slow down again in 4Q14 as the number of subscribers is currently only 712k (end-3Q14: 700k). We expect broadband subscriber growth to pick up in 2015/16 to 4.5%/4.2% yoy (2014F: +3.1%) once HSBB-2 is rolled out.
Voice, data and other revenues trended down as well
Voice revenues fell 9.2% qoq (-9.0% yoy) affected by the cleanup of delinquent accounts. On a normalised basis, voice revenues eased 3.2% qoq (-3.4% yoy) as there were no wholesale international capacity sold in the quarter. Data revenues fell 9.0% qoq (-7.7% yoy). Excluding one-off next-generation backhaul revenues booked in 2Q14, data revenue was down 3.8% qoq. Other revenues fell 5.9% qoq (+31.7% yoy) due deferment of customer projects.
Higher EBITDA margin in 3Q14
EBITDA margin improved by 1.2% pts qoq (-0.9% pts yoy) to 33.2% in 3Q14. This was largely due to lower manpower cost because of a reversal of excess bonus provision in 3Q14, while 2Q14 had contained provision for unutilised carried forward leave. Overall, we forecast margins to decline to 32.4% in FY14 (2013: 33.1%) due to higher content, electricity and staff costs. Margin should further decline to 31.5%/31.1% in FY15/16 after factoring in the dilution from P1.
Source: CIMB Daybreak - 27 November 2014
Target RM6.00 (Stock Rating: REDUCE)
TM’s 3Q14 core net profit fell 10.5% qoq (-29.1% yoy) due to lower revenues across all business segments. 9M14 earnings was at 70% of our and 66% of consensus FY14 estimates. Results were largely in line as we expect a stronger 4Q14 but below consensus expectation. As expected, no dividends were declared for 3Q. We keep our FY14-16 earnings forecasts, which factors in dilution from P1 and 50% government grant for HSBB-2. Our DCF-based target price remains at RM6.00 (WACC: 8.0%). Key de-rating catalysts are slowing broadband business growth and potential disappointment from its P1 acquisition. Its FY14-16 dividend yields of 2.8-3.3% are also unattractive vs. telco peers. Maintain Reduce. For Malaysian telcos, we prefer Axiata Group.
Internet revenues down due to Streamyx cleanup
Internet revenues fell 1.8% qoq (+4.1% yoy) in 3Q14 due to the cleanup of 90k delinquent Streamyx accounts, which resulted in net subscriber loss of 65k. For UniFi, net addition picked up slightly qoq to 27k (2Q14: 20k, 3Q13: 30k) due to more aggressive selling activities. The pace of UniFi net addition could slow down again in 4Q14 as the number of subscribers is currently only 712k (end-3Q14: 700k). We expect broadband subscriber growth to pick up in 2015/16 to 4.5%/4.2% yoy (2014F: +3.1%) once HSBB-2 is rolled out.
Voice, data and other revenues trended down as well
Voice revenues fell 9.2% qoq (-9.0% yoy) affected by the cleanup of delinquent accounts. On a normalised basis, voice revenues eased 3.2% qoq (-3.4% yoy) as there were no wholesale international capacity sold in the quarter. Data revenues fell 9.0% qoq (-7.7% yoy). Excluding one-off next-generation backhaul revenues booked in 2Q14, data revenue was down 3.8% qoq. Other revenues fell 5.9% qoq (+31.7% yoy) due deferment of customer projects.
Higher EBITDA margin in 3Q14
EBITDA margin improved by 1.2% pts qoq (-0.9% pts yoy) to 33.2% in 3Q14. This was largely due to lower manpower cost because of a reversal of excess bonus provision in 3Q14, while 2Q14 had contained provision for unutilised carried forward leave. Overall, we forecast margins to decline to 32.4% in FY14 (2013: 33.1%) due to higher content, electricity and staff costs. Margin should further decline to 31.5%/31.1% in FY15/16 after factoring in the dilution from P1.
Source: CIMB Daybreak - 27 November 2014
