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 15x, which is below its 5-year mean of 18x. No change to our neutral 3-star ESG rating.

• TM’s 9MFY23 core net profit (CNP) of RM1,624mil exceeded expectations, already 121% above our earlier full-year estimate and 109% above consensus mainly due to a positive tax charge from unutilised tax losses in prior years following the group’s internal organisational restructuring exercises.

• Hence, we raised FY23F net profit by 35% to account for tax credit from utilisation of unrecognised losses while maintaining FY24F-FY25F earnings pending further clarity from management on the remaining unutilised losses.

• 9MFY23 CNP surged 61% YoY, mainly driven by a 14% reduction in net interest expenses (-14%) and a positive tax charge of RM30mil (vs. RM489mil negative tax charge in 9MFY22), arising from the utilisation of tax credits. Revenue was flattish YoY in 9MFY23 as growth in unifi was offset by lower contribution from TM One as customer projects were deferred.

• Revenue from internet and media products increased by 5% from RM3.3bil in 9MFY22 to RM3.4bil in 9MFY23. This was supported by a higher number of unifi subscribers in 9MFY23. However, revenue from data declined by 3% YoY in 9MFY23 due to the negative impact of the MSAP cuts.

• On a QoQ basis, 3QFY23 core net profit rose 11% to RM597mil mainly due to lower net interest charges. Even so, 3QFY23 revenue decreased by 0.7% QoQ, dragged by declines in TM One and TM Global. Revenue from unifi was also stagnant during the quarter.

• TM’s 3QFY23 fixed broadband subscribers climbed 7% YoY to 3.1mil, driven by enhanced convergence campaigns and quad plays of content, mobile, voice and broadband. Unifi subscribers increased by 205K in 3QFY23 from 3QFY22 while Streamyx subscribers fell by 69K from 3QFY22, as TM migrated Streamyx subscribers to unifi services.

• Sequentially, Unifi’s 3QY23 average revenue per user (ARPU) increased RM1/month to RM131/month, boosted by better take up in higher value packages. Streamyx’s ARPU surged by 12% QoQ from RM106/month to RM119/month, supported by higher demand from enterprise for digitalisation of services.

• TM is trading at a compelling FY23F PE of 10x, significantly below its 5-year historical average of 18x, while offering a decent dividend yield of 3%.

Source: AmInvest Research - 24 Nov 2023