TM 9-month results above expectations

Telekom Malaysia Bhd's nine-month financial year 2013 results came in above research houses' expectations due to
better-than-expected margins and lower effective tax rate.

Alliance Research said the nine-month period core net profit of RM748.8 million accounted for 87 per cent and 91 per cent of the research houses and consensus full year forecast.

"This is attributed to the more favourable outcome of the collective agreement negotiations with its staff union, lower maintenance cost and lower marketing expenses," the research house said in a note today.

Alliance Research had raised earnings forecasts by 3.6 per cent to 17.7 per cent after adjusting for higher margins in financial year 2013 to financial year 2015 and lower effective tax rate in the current financial year.

HwangDBS Vickers Research said while the high speed broadband-related revenue in retail and wholesale and streamyx upsells continue to drive revenue growth prospects, cost pressures in terms of content coat and marketing expenses might impact the margin.

The research house said the government-planned high speed broadband phase 2 to expand penetration to more households could dilute Telekom Malaysia's earnings before interest and tax margin given the high customer acquisition costs and break-even period of around two years.

However, it said the outcome would largely be dependent on the mix of connection cable, which comprised copper-based (4 megabytes per second connections) and fibre-based (5-20 megabytes per second connections).

"Telekom may employ faster copper-based networks instead of fibre rollouts as well," HwangDBS said.

Alliance has upgraded Telekom Malaysia to 'buy' call from 'neutral' and revised upwards its target price to RM5.74 from RM5.52 previously.

HwangDBS Vickers has maintained 'fully valued' view on the company and kept its target price at RM4.80