We maintain BUY on Telekom Malaysia (TM) with an unchanged DCF-based fair value (FV) of RM6.70/share (WACC: 7.5%; terminal growth: 1.5%). Our FV implies an FY23F PE of 18.5x – near its 5-year mean of 18x. No change to our neutral 3-star ESG rating.
TM’s FY22 results beat our and consensus expectations. The core net profit of RM1,557mil outperformed our estimate by 18% and street’s by 20%.
However, we made no changes to our FY23F-FY24F earnings, taking a more conservative view following the uncertainties of the mandatory standard access pricing impact on the group’s core fixed broadband business.
We exclude one-off manpower optimisation cost (RM138mil), accelerated depreciation from assets’ useful life review (RM283mil) and unrealised forex gain (RM8mil) for our FY22 core earnings calculation.
The group posted a robust FY22 revenue growth of 5% to RM12.1bil as all business segments contributed positively, except for TM One. Coupled with better-controlled spending, this trickled down to the group’s underlying EBIT level (+15% YoY) and core earnings (+35% YoY) despite a higher effective rate (+2.6%-points) due to prosperity tax.
On a QoQ basis, the group’s 4QFY22 revenue declined 6% but lower tax provisions helped to more than offset the impact, driving its core earnings higher by 2.3x.
FY22 capex of RM2.4bil translates to 20% (+5.3%-points) of the group’s revenue, exceeding management guidance of 14%-18%. The investment was predominantly utilised to grow its fibre service and network expansion.
Operationally, TM’s 4QFY22 fixed broadband subscribers climbed by 56K QoQ, with a net addition of 87K unifi users that was partially offset by a 31K 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.
QoQ, unifi’s 4QFY22 average revenue per user (ARPU) was maintained at RM132/month while Streamyx’s improved by RM13/month to RM113/month.
Meanwhile, TM One’s FY22 revenue rose 1% YoY, contributed by increasing demand for ICT services across large enterprises and government sectors.
Valuation-wise, the stock is trading at a compelling FY23F PE of 14x, below its 5-year historical average of 18x, while offering a decent dividend yield of 3%.
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