TELEKOM MALAYSIA BHD

By UOB Kay Hian Hold (maintained) Target price: RM6.40

THE year 2018 will likely be a year of earnings consolidation for Telekom Malaysia Bhd (TM), according to UOB Kay Hian.

The research firm said that TM is expected to achieve flattish earnings this year, as the telecommunications player’s core earnings will likely come in at approximately RM839mil. This is on the back of higher marketing efforts and a lower number of public sector jobs.

“We note that the company is consolidating its various services to narrow the gap towards convergence. Broadly, mass market consumer services like Streamyx, webe, and unifi are currently being consolidated into a single brand under unifi.

“This will pave way for management to provide a full suite of solutions to consumers and small and medium enterprises (SMEs).

“More importantly, this also marks TM’s medium-term convergence ambition as it transforms TM’s current triple-play offering into a quad play,” said the research house in its published note.

Top line-wise, UOB Kay Hian expects TM’s revenue to grow by mid-single digits in 2018, against a backdrop of wider coverage and targeted marketing.

Unifi’s revenue in the first nine months of financial year 2017 grew by 4% year-on-year to RM3.9mil. As of June 2017, unifi’s customer base has crossed the one million threshold.

Moving forward, TM aims to grow unifi subscriber numbers to 1.5 million by end2018.

“All in all, we expect TM to remain a dominant fixed broadband player with 2.35 million broadband subscribers. 94% of unifi’s customers are currently on 10 Mbps and above packages, which existing fibre and certain copper assets can support.

“Separately, we expect unifi mobile take-up rates to meet the company’s expectations, to cater approximately 10% of households under TM’s coverage,” the research firm said, adding that UniFi mobile’s pre-tax losses are estimated at RM184mil and RM135mil in 2017 and 2018 respectively.

UOB Kay Hian reiterated its “hold” call on TM and a target price of RM6.40.