Telekom Malaysia (TM) posted a 170.6% YoY increase in 4QFY23 net profit mainly due to the recognition of tax credits from untilised tax losses. On a QoQ basis, net profit was down 19.5% due to higher operating cost. After stripping out impairment and tax effects, TM’s FY23 profit at the pretax level of RM1,945m was broadly within our and consensus expectations. We make no changes to our FY24-25F earnings forecasts. However, given the recent runup in its share price, our TP is only implying an upside of 5.1%. As such, we downgrade TM from Outperform to Neutral. A second interim dividend of 10.5sen per share and a final dividend of 5.0sen per share were declared. This brings a total dividend of 25sen per share for FY23, higher than FY22’s 16.5sen per share.

• 4QFY23 revenue rose 5.1% YoY, mainly due to higher contribution from TM One and TM Global. TM One’s growth of 2.6% YoY was driven by higher solution based revenue while TM Global, which reported an 18.5% YoY growth, was supported by higher revenue from domestic and international date services. However, unifi posted a 2.2% decline in revenue due to lower voice usage and mobile services.

• 4QFY23 net profit jumped 170.6% YoY, mainly due to lower interest cost and the recognition of tax credit from unutilised losses, which resulted in a credit of RM46.3m compared to a tax cost of RM53.6m in 4QFY22. For FY23, the tax credit was RM76.5m versus a tax cost of RM542.3m in FY22.

• Outlook. Following the completion of TM’s 3-year transformation phase in 2023, the group is now embarking on a plan to become a Digital Powerhouse by 2030. In 2024, the group will focus on core connectivity while exploring new ventures, including platform and ecosystem, leveraging on cloud platforms and new technologies like artificial intelligence. Some of its aspirations include offering converged solutions for consumers and businesses, focusing on managed services with nextgen connectivity as well as expansion of domestic fibre network and international wholesale platform with new submarine cables, data centres, media delivery and edge computing.

Source: PublicInvest Research - 26 Feb 2024