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Asia300

Telekom Malaysia's 4Q net profit jumps nearly 80%

Company guides for 3.5%-4% revenue growth in 2018 powered by broadband offering

Telekom Malaysia aims to migrate more than a million of existing subscribers using older and slower Streamyx to unifi broadband service.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Telekom Malaysia, which Tuesday reported a near 80% jump in fourth quarter net profit thanks to currency gains that offset a decline in revenue, guided for a 3.5%-to-4.0% annual income expansion in 2018, powered mostly by broadband service offering.

The state-run fixed-line telecom service provider said its net profit for the three months ended Dec. 31 totalled 277.01 million ringgit ($70.80 million), compared with 154.31 million ringgit a year ago. Quarterly revenue fell 1.1% to 3.20 billion ringgit, dragged down by a decline in voice-based revenue, the company said in an exchange filing. The latest quarter recorded a foreign exchange gain of 74.80 million ringgit, compared with a loss of 120.50 million ringgit a year earlier.

The company said it expects revenue to grow faster by 3.5%-to-4.0% this year, while earnings before interest, tax - a measure of operating earnings - are likely to remain at the levels similar to that of last year.

Revenue in 2018 will be driven by new subscriber additions to its 'unifi' broadband service, Chief Executive Mohammed Shazalli Ramly said at an earnings briefing. The company aims to migrate more than a million of existing subscribers using older and slower Streamyx service to unifi, he said.

The company also plans to introduce in July a "magic box" broadband service that can be moved from one home to another and utilize existing copper lines. The move will address a group of younger consumers who are not willing to be tethered to unifi's long-term, fixed-line contract, he said.

"This is a massive innovation on our side," he said. "We will market this very aggressively."

But a smooth migration would be a challenge for Telekom Malaysia at a time when mobile internet service providers appear to be pinching the company's customers, said Lee Cherng Wee, an analyst at JF Apex Securities. "The growth in unifi subscribers is less than the churn rate in Streamyx users. That means some of the consumers must have gone, perhaps to rival providers," he said.

The company may need to entice users by offering promotional prices, which would in turn cap revenue per user, he said.

Average revenue per user could drop "a bit" in 2018, due to higher base effect, Chief Financial Officer Nor Fadhilah Mohd Ali said. The company expects capital expenditure in the "high 20s" as a mix of total revenue compared to 22.8% in 2017, she added.

For its full year, net profit rose 20% to 730.55 million ringgit, while revenue rose 0.2% to 12.09 billion ringgit from 12.06 billion ringgit in 2016. Earnings before interest tax expanded 0.2% last year.

A brutal price war has bruised nearly half a dozen Malaysian telecom operators amid intensifying competition, sparking speculation of a consolidation in the industry.

Last month, Axiata Group, Malaysia's largest telecom company, said a re-merger with Telekom Malaysia with which it parted ways in 2008, "makes sense." However, it clarified last week that there aren't any talk on going with Telekom Malaysia on a potential merger. Shazalli also reiterated the company has no plan for a re-merger with Axiata.

Shares of Telekom Malaysia ended 0.5% higher at 6.03 ringgit on Tuesday, while the benchmark FTSE Bursa Malaysia KLCI closed 0.6% higher.

--Alexander Winifred

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