We maintain BUY on Telekom Malaysia (TM) with a slightly lower DCF-based (WACC: 8.5%; terminal growth: 1.5%) fair value (FV) of RM7.20/share (previously RM7.24/share) after revising FY23F-FY24F earnings. Our FV implies an FY23F PE of 18x – near 5-year mean of 17.8x. No change to our neutral 3-star ESG rating.
TM’s 9MFY22 core net profit of RM1,011mil is largely in line with our expectation but above consensus. It accounts for 76% of our full-year FY22F earnings estimate and 81% of street’s. Nevertheless, we reduce FY23F-FY24F earnings by 7%-10% due to housekeeping exercises without any changes to FY22F.
The group posted robust 3QFY22 revenue growth of 13% YoY to RM3.2bil as all business segments contributed positively to its topline. Coupled with better-controlled spending, this trickled down to EBIT level, which surged 38% YoY. However, TM’s PATAMI came out lower at RM241mil (-20% YoY), dragged by prosperity tax provision, which drove 3QFY22 effective tax rate to 43% from 23% in 3QFY21.
On a QoQ basis, the group’s 3QFY22 revenue grew 2% but higher costs across all key items dragged EBIT lower by 3% to RM607mil. Exacerbated by the impact of prosperity tax, core net profit declined sequentially by 29%.
The group’s 3QFY22 capex increased 13% YoY to RM603mil, translating to 19% of revenue vs. 16% in 2QFY22. We maintain our FY22F capex/revenue at 18%, at the higher end of management’s guidance of 14%– 18%, as the group historically incurred lower capex in 1H vs. escalated spending in 2H.
In terms of business operations, TM’s 3QFY22 fixed broadband subscribers climbed by 64K QoQ, with a net addition of 115k unifi users that was partially offset by a 51K reduction in Streamyx users. We expect this trend to continue with TM phasing out its Streamyx services and migrating all users to unifi by 2025.
unifi’s 3QFY22 average revenue per user (ARPU) dropped RM5/month QoQ to RM132/month while Streamyx’s improved RM3/month to RM100/month
Meanwhile, TM One’s 3QFY22 revenue rose 5% YoY and 4% QoQ on increasing demand for business solutions and ICT services across large enterprises and government sectors.
Valuation-wise, the stock is trading at a compelling 14x, below its 5-year historical average of 17.8x while offering a decent dividend yield of 3%.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....