Investment Highlights

• 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%.

Source: AmInvest Research - 1 Mar 2023