TM’s near-term earnings trajectory remains subdued

PETALING JAYA: Telekom Malaysia Bhd’s (TM) first half financial year 2017 (1H17) results were in line with expectations, with lower depreciation offsetting seemingly higher-than-expected wireless losses.

The telecommunications company’s second quarter ended June 30, 2017 (2Q17) core net profit of RM 208mil was 24% higher on-year, bringing 1H17 core net profit 18% higher on-year to RM 438mil. This came to 54% and 51% of Maybank Investment Research’s and consensus forecasts respectively.

According to the research house, the higher profit in the current period was due to accelerated depreciation in the first half of 2016.

“Relative to our forecasts, 1H17 wireless losses (no longer disclosed) appear to be higher-than-expected, but this was offset by lower-than-expected depreciation. First half core earnings before interest, tax, depreciation and amortisation (EBITDA) of RM 1.86bil (-2% y-o-y) was 47% of our/consensus full-year forecasts. A 9.4 sen interim dividend per share was declared,” it said.

UniFi added 28,000 subscribers on-quarter with average revenue per user still elevated. On the flip side, Streamyx saw an accelerated loss of 39,000 subscribers on-quarter. On a cumulative basis, TM experienced a net loss of fixed broadband subscribers for the first time since the launch of UniFi.

Webe’s penetration among TM households climbed further to 5.6% in 2Q17 from 4.2% in 1Q17.

Maybank Investment Research maintains its “hold call” with unchanged earnings forecasts and target price of RM6, derived from a discounted cash flow, assuming 7.5% weighted average cost of capital and 2% long-term growth.

“TM’s near-term earnings trajectory remains subdued with Webe possibly remaining EBITDAnegative in 2017-18,” it said.

Shares of the company closed at RM6.43, down by one sen.