Telekom Malaysia Q1 2007 Results

We have commented before on the effectiveness of Telekom Malaysia's strategy of expansion into its immediate geographic region and the portfolio of businesses it has built up now contributes more than one quarter of total revenues. However, one of the problems of international diversification is that it brings a currency risk with it. This quarter, the results reflect the combination of a rising Ringgit and increased competition and as a consequence, revenues from the international side of the business are down slightly at RM1,138m. This is a drop of less than 2% on Q4's RM1,158m, so it is hardly catastrophic, especially when it is remembered that it is more than 20% up on the same quarter of 2006.

Of more concern to management will be the drop in domestic fixed line revenues. Overall fixed revenues are down by 7% on the quarter at RM1,788m and this drop has been reflected in the overall group profit and loss account which shows a 7% drop in profit before tax. This decline is due to reducing usage, rather than the erosion of the fixed line base that has characterised earlier quarters, but the consequences are the same. Business ARPU has dropped from RM124 in Q1 06 to RM122 in Q4 to RM117 in this latest period. Residential spend, over the same periods, has gone from RM38 to RM37 to RM35. Dial up spend is down from RM7 to RM5, while even broadband internet ARPU is lower, at RM93, after RM98 and RM94. Unlike its European and American counterparts however, Telekom Malaysia (TM) has not reacted by increasing investment in fixed line assets. On the contrary, the budget in the first quarter has been slashed from RM237m to RM170m. Whether this is a short term blip or a deliberate, long term strategy remains to be seen.

All of the company's main international mobile businesses have shown good customer growth over the quarter and the group total now exceeds 30m for the first time. Quarter on quarter, the group managed a 6.4% increase from 28.5m to 30.3m, which equates to a year on year increase of 36.3%. On a like for like basis, if we strip out the recently acquired stake in Spice in India, these increases fall back to 5.9% and 24% respectively. The chart below shows the Group's net additions over the last eight quarters. Of particular note are the first time contribution from M1 Singapore in Q4 05 and Spice in India in Q3 06 and, of course, the cull of inactive prepaid customers in Malaysia in Q3 and Q4 06.

Turning to the KPIs, Celcom saw a further increase in ARPU following the reduction in overall customer numbers, with contract spend rising from RM109 to RM113 per month (+3.7%), while prepaid spend rose RM45 to RM53 (+17.8%) as inactive and unregistered accounts were wholly excluded for the first time. The overall base is dominated by prepaid customers (5.05m against 1.19m) so it is no surprise to see that the overall average is also well ahead, up 16% at RM65, after RM56 in Q4. TM's presentation states that there has been a "vast improvement in ARPU for both segments" and while 3.7% hardly fits this description, the over-enthusiasm can be forgiven as the 1% rise in revenues produced a 4.5% increase in EBITDA (to RM542m) and a 10% improvement in profit after tax (to RM233m).

In the fourth quarter of 2005, Excelcomindo in Indonesia overtook Celcom to become the largest part of TM's mobile customer base. It has continued to grow more rapidly and in this last quarter, passed the 10m mark for the first time. Year on year, it added 23% to its total, to end the quarter with 10.1m. However, ARPU dropped at both the prepaid base (from Rp42 to Rp38) and amongst contract customers (from Rp172 to Rp153) and as a result, quarterly revenues fell back from Rp1,900m to Rp1,763m. Lower marketing and selling expenses more than offset this though and EBITDA jumped by nearly 20% to R759m.

As the chart shows, Excelcomindo has been the mainstay of the Group's growth over the recent past, but there are signs that this mantle may be passing to Bangladesh. Here, revenues grew by 26%, to BDT3,391m, on the back of a 105% year on year increase in customer numbers. During the quarter, nearly 500k new connections were made and as a result, the total base - 6,258,000 - now exceeds that of Celcom. In Q4 06, regulatory intervention increased operating costs and as a result, a 40% improvement in revenue only produced a 10% gain at the EBITDA level. In the current quarter, the overall revenue dropped by 3.2%, as ARPUs continued to decline, with the consequence that EBITDA dropped by some 6%, to BDT1.66bn. In Q4, we saw a 39% decline in contract spend and a 20% drop in prepaid. This quarter, the result is very similar, with contract spend down 36% from BDT 1,304 to BDT 835 and prepaid 21.5% to BDT 227.

The financial picture at Dialog in Sri Lanka is very similar. Here, revenues are up on the back of increased ARPUs, but margins have been depressed by start-up costs associated with a new Media business, so EBITDA and profit after tax are both down at SLR1,657m (SLR1,763m in Q4) and SLR895m (SLR1,357m). The pure mobile business is performing well though, with contract ARPU up at SLR1,687 (+3.2%) and prepaid spend up 2.4% at SLR423. These increases have occurred despite the fact that the overall base is 8% larger than at the end of the prior quarter, at 3.365m. Telekom Malaysia has not gone into any great details about any of its other international interests. Spice is preparing for an IPO and Samart has yet to report in detail. M1 in Singapore has already reported, but presumably, TM feels interested parties can take this data from the horse's mouth (as we have done in an earlier issue of the Briefing). It does, however, note that M1 saw a 12% drop in EBITDA to RM174m, despite having increased revenues by 2.5% to RM448m, while Samart in Cambodia saw its EBITDA increase from RM13m to RM15m on the back of a 30% rise in revenues to RM35m. As noted in Issue 57, TM has resumed giving basic information about its interest in Malawi and this saw a small drop in revenues, to RM23m produce an 80% increase in EBITDA to RM18, implying an impressive near-80% margin.

This article was extracted from The Mobile World Briefing, the weekly newsletter from The Mobile World. To download a sample issue of the Briefing in PDF format, please click here. For more information including full subscription pricing, please visit The Mobile World"

Posted to the site on 31st May 2007