• Overview. TM’s 1Q22 PATAMI increased 4.4% yoy to RM340m mainly due to stronger performance in Unifi (+10.7%) and TM Wholesale (+2.1%) (Table 2) as well as lower finance costs. Meanwhile, on qoq basis, TM’s PATAMI surged over 300% despite recorded lower revenue (-8.3%). Improved in TM’s qoq PATAMI was backed by lower net opex following its cost optimisation programme, decrease in depreciation & amortisation, and finance cost.

• Key Highlight. Fixed broadband subscribers reached a new record high in 1Q22 at 2.8m, an increase of 16.6% yoy and 2.5% qoq. However, Unifi’s average revenue per user (ARPU) fell 6% yoy and 4% qoq to RM136 (Table 3). This was underpinned by TM’s aggressive promotions and marketing strategy to secure new Unifi customers through a cheaper broadband package plan offering. We expect Unifi’s ARPU to improve and sustain in the long run following TM's numerous attractive packages to encourage customers to upgrade their packages plan.

• Against estimates: Inline. TM’s 1Q22 PATAMI of RM340m came in within our and consensus’ estimate at 29.7% and 29.1%, respectively.

• Outlook. We remain upbeat on TM’s business prospects given its attractive business outlook driven by robust new subscribers’ growth from both retailers and business premises, pent-up demand for data centres and cloud services, as well as the development of 4G and 5G network infrastructure. We believe this is fair as we expect core PATAMI to grow at a 3-year CAGR of 5% to RM1.1bn over 2021 – 2024F on better prospects across all business segments.

• Our call. Reiterate our BUY call with DCF-derived TP of RM7.58 (WACC: 7.4%; g: 1.0%). At our TP, the stock implies a 25.3x PER, trading above its 5-year PER of 22x. As such, we believe that TM’s current valuation represents an attractive buying opportunity for investors, given the company’s relatively favourable earnings prospects.

Source: BIMB Securities Research - 26 May 2022