Telekom Malaysia (TM) reported a sharply drop in profit and slow revenue growth in Q3, as declines in fixed-line voice and data revenue offset steady internet growth.
Its profit (after tax and minority interest) fell 21.6% to 188 million ringgit ($56 million). Its EBITDA fell 3% to 879 million ringgit.
Overall revenue was up 1% to 2.62 billion ringgit, with a 7.8% drop in data revenue and a 9% fall in voice cancelling out a 4% increase in internet revenue to 714 million ringgit. Voice accounted for 31% of revenue (down from 34% in 2013), while its internet business made up 27% of total revenue and data revenue represented 22% (down from 24% a year ago).
TM's total broadband customers grew by 1.3% year-on-year to 2.2 million. Its high-speed UniFi customer base increased 15.3% to nearly 700,000, but its Streamyx broadband service lost 64,000 connections since Q3 2013 due to a cleanup of the residential and business database.
ARPU for fixed-line voice was down 3%. UniFi ARPU rose 3% while Streamyx ARPU fell 2.4% during Q3.
Its global wholesale business decreased 18% to 361 million ringgit.
The Malaysian firm’s capex for the first nine months of the year was down 14% to 946 million ringgit from the same period in 2013. Its capex guidance for the full year is 18% of revenue.
TM's reported EBITDA margins decreased to 33.1% for the nine months to September compared to 33.6% a year ago due to higher maintenance fees and manpower costs.
Moody's expects TM to maintain low-to-mid single-digit earnings growth over the next two years, supported by increasing broadband revenues driven by the country’s relatively low broadband penetration rate, said Nidhi Dhruv, a Moody's analyst.
However, Moody's says margin improvements in the next 12 to 18 months are unlikely, given the increasing broadband penetration, greater competition in retail broadband and the acquisition of P1, which will be margin dilutive as P1's EBITDA margins are lower than TM's.
In addition, Moody's expects capital requirements for the HSBB project to continue to pressure cash flow. Aside from its investment in P1, it expects TM's annual capex will be 2-2.5 billion ringgit in 2014 and 2015, or about the same level as 2013.
"Nonetheless, the incremental debt from P1 coupled with margin pressure, high capex and high shareholder returns will lead to an increase in TM’s leverage over the next two years. We estimate adjusted debt/EBITDA will remain in the 2.0-2.5x range," Dhruv said.