Thursday, May 26, 2011

TM 1Q11 In-line; Seasonally Soft Data

26 May 2011
Price Target: RM4.20
Share Price: RM3.90


Results
# 1Q11 Results were largely in-line with our expectations for a softer 1Q11.

# EBITDA margins improved qoq to 33% due to lower interconnect, international outpayment, lower maintenance, supplies and materials costs (due to lower project costs).

# 1Q11 Core PBT of RM184.4m (-9% yoy, +7% qoq) improved qoq largely due to an accelerated depreciation provision of RM66m in 4Q10.

Deviations
Other income (sales of scrap and insurance claims) caused us to miss our 1Q11 Core PBT estimate.

Highlights
# Unifi take-up rates accelerated with 7.4% in 1Q11 vs. a 4.3% in 4Q10. There were 63.5k Unifi subscribers in 1Q11, comprising 8.4k business and 55.2k residential subscribers.

# 1Q11 Unifi blended ARPUs improved to RM199 (from RM188 in 4Q10) with business ARPUs of RM414 and residential ARPUs of RM159.

# Streamyx 1Q11 net adds slowed to 28k from 84k in 4Q10. Streamyx blended ARPUs flattened qoq to RM77.

# TM expects to sign a definitive HSBB Wholesale agreement by end May 2011.

# TM is waiting for the right time and price to sell its remaining Axiata shares. TM will continue to reward shareholders when it has excess cash and the company targets a gross debt to EBITDA ratio of 2x (from 1.8x currently).

Risks
Government regulations, competitive risks.

Forecasts
Fine-tuned but largely unchanged.

Rating
BUY (TP: RM4.20, unchanged)

Positives
– Earnings uplift from a convergence of multiple growth drivers including Wholesale, HSBB and Streamyx and further cash management potential.

Negatives
– Unattractive wholesale pricing could limit wholesale growth. HSBB equipment subsidies.

Valuation
At current price, TM is trading at an FY11 and FY12 PER of 21.7x and 19.0x respectively. Net dividend yields of 5.1% and the potential for further cash management would serve to underpin the share price.

We believe TM will be one of the prime beneficiaries of the coming convergence between mobile, fixed and media players. We maintain our BUY call and target price of RM4.20 (based on DDM, WACC of 6.3%, TG 0%).


Source: HLeBroking

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