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%.
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