Telekom Malaysia’s (TM) 1QFY23 net profit declined marginally by 2.9% YoY but increased sharply by 106% QoQ, the latter mainly due to lower depreciation cost. On a YoY basis, revenue increased marginally by 2% while interest and tax cost was lower, though this was offset by higher depreciation cost. Depreciation cost rose 28.6% YoY (but declined 21.1% QoQ). 1QFY23 results came in broadly in line with expectations, accounting for 24% and 25% of our and consensus full-year forecasts, respectively. We tweak our FY23-25F earnings forecasts by 1-3% due to housekeeping changes. TM remains our top pick in the telco space, owing to its leading position as the country’s preferred network infrastructure provider. Maintain Outperform with an unchanged TP of RM6.20. No dividend was declared for this quarter.

• 1QFY23 revenue up marginally by 2% YoY, as the increase in revenue contribution from unifi and TM Global was offset by lower revenue from TM One. Unifi saw a 4.3% increase in revenue due to higher internet usage with fixed internet subscriber base increasing 8.1% to almost 3.1m against 2.8m in 1QFY22. Meanwhile, TM Global posted higher revenue from data and data centre co-location services. However, TM One posted a 6.7% drop due to price reductions of large contracts and lower one-off customer project.

• 1QFY23 net profit fell 2.9% YoY, as the increase in revenue was offset by the impact of a 28.6% increase in depreciation cost. This was despite net interest cost and tax cost falling by 38.0% and 29.7% respectively. The increase in depreciation cost was due to revision of useful life of certain network and non-network assets from 15 to 10 years and the recognition of impairment losses on IT infrastructure facilities.

• 5G plan. TM has called off its deal to buy a 20% stake in Digital Nasional Bhd (DNB) following the announcement by the government that a second 5G network provider will be allowed once population coverage reaches 80% by end of this year. We believe this termination was to make way for TM to play a more direct role in the development of 5G infrastructure in Malaysia. For now, TM’s customers will continue to enjoy 5G services as its wholesale access agreement with DNB is still in place. Once DNB has fulfilled its responsibility in deploying 5G network to 80% of populated area, we believe another state-owned entity may be tasked to take over DNB.

Source: PublicInvest Research - 26 May 2023