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.

• We made no changes in our estimates given that TM’s  1QFY23 results came out largely within our and  consensus expectations. 

• The core net profit of RM378mil accounts for 28% of our  FY23F earnings and 29% of consensus. We exclude oneoff accelerated depreciation from the assets’ useful life  review (RM42mil) and unrealised forex gain (RM5.4mil)  from our 1QFY23 core earnings calculation.

• The group posted a decent 1QFY23 revenue growth of  2% to RM3.0bil as all business segments contributed  positively, except for TM One (-7% YoY) which was  affected by the downward revision of MyGov*Net  contract. unifi’s (+4% YoY) outperformance was mainly  driven by a higher fixed broadband subscriber base. 

• However, the group earnings (-12% YoY) were affected  by an increase in operational expenditure (+20% YoY)  i.e., maintenance cost, utilities cost and license cost as  well as higher depreciation charges (+22% YoY).

• On a QoQ basis, the group’s 4QFY22 revenue declined  1% as the decline in TM One’s sales (-9% QoQ) more than  offset the improvement in other business pillars.

• Operationally, TM’s 1QFY23 fixed broadband  subscribers climbed by 43K QoQ, with a net addition of  61K unifi users that was partially offset by a 18K  reduction in Streamyx users. We expect this trend to  continue with TM phasing out Streamyx services and  migrating all users to unifi by 2025.

• QoQ, unifi’s 1QFY23 average revenue per user (ARPU)  was maintained at RM132/month while Streamyx  declined by RM5/month to RM108/month.

• 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 - 26 May 2023