Telekom Malaysia reported a 69.2% decline in 4QFY21 net profit to RM80m, mainly due to higher depreciation and amortisation charges, impairment of mobile assets and provisions. Stripping out non-operating items, normalised 4QFY21 net profit was down 33.7% YoY. For full-year FY21, normalised net profit was below our and market expectations at 90% of full-year forecast. This was largely due to higher-than-expected depreciation cost and higher effective tax rate. We lower our FY22-23F earnings forecasts by 4-8% after imputing in higher depreciation cost. Hence, our TP is reduced from RM6.70 to RM6.40. We maintain our Outperform rating. We believe that TM, being the country’s largest telco service provider, should benefit from the growing demand for fibre leasing and data centre solutions in Malaysia.

• 4QFY21 revenue rose 5.1% YoY due to higher contribution from internet and data revenue. Internet revenue rose 10.6% as unifi customer base expanded by +40.8% YoY on a lower ARPU of RM141 (- 7.8% YoY). Meanwhile, Streamyx customer base shrank by 50% YoY, though ARPU remained largely unchanged. Data revenue grew 13.2% due to higher indefeasible right of use (IRU) deals. However, this was partly offset by lower voice revenue and delays in customer projects due to the lockdown.

• 4QFY21 normalised net profit was down 33.7% YoY as the increase in revenue was offset by higher cost, particularly depreciation and amortisation cost (+46.9% YoY). This was due to the Group adopting accelerated depreciation on its network assets. The headline number also included an RM122m impairment of mobile assets and provisions for restoration of services and network affected by the floods in December 2021. The Group’s capex-to-revenue increased from 13.7% in FY20 to 14.7% in FY21.

• Investment in new submarine cable system. TM has recently announced its participation in a consortium to build the SEA-ME-WE 6 submarine cable system linking Malaysia with multiple countries. The new investment will enable TM to access one of the lowest latency routes between Malaysia and Europe as well as providing additional layer of network diversity for heavy traffic between the two regions. This should also allow TM to support the deployment of hyper-scale data centres and 5G network in the country. Prior to this, TM has also invested in other submarine cable systems i.e SEA-ME-WE 3, SEA-ME WE 4 and SEA-ME-WE 5.

Source: PublicInvest Research - 28 Feb 2022