TM : Core net profit improved 16.5% qoq

Outperform
3QFY09 Results/Briefing Update
- 3Q results missed both our and consensus expectations. The key variances were weaker-than-expected margins and a higher-than-expected effective tax rate. As expected, TM did not declare any dividend.

- 3Q EBITDA fell 7.2% qoq on weaker revenue (-1.3% qoq) and margin compression as EBITDA margin slipped 2.1%-pts to 33.6%. Nevertheless, core net profit improved 16.5% qoq due to:
1) lower depreciation following the revision in estimated useful life of certain network assets; and
2) lower effective tax rate of 23% (excluding exceptional items vs. 2Q09: 50%).

- TM continued to remain tight-lipped with respect to details on the HSBB project. The number of premises passed as at 11 Nov was around 90k and management targets to pass 150k premises by end-2009 and 750k by end-2010. Management does not expect any significant topline contribution from HSBB next year but contribution in 2011 could be more significant as the number of premises passed rises.

- We have cut our FY09-11 net profit forecasts by 6-9.3% following the weaker-than-expected numbers.

- TM’s investment case is its steady dividends it offers investors while its RM2.76bn cash pile as at end-3Q09 provides cover for around four years’ worth of minimum dividend payments. No change to our fair value of RM3.55 (based on required net yield assumption of 5.5%) and Outperform recommendation.