Telekom Malaysia (TM)’s 1Q23 net profit of RM330mn was in line with our and consensus expectations, accounting 28.4% and 25.4% of full year estimates respectively. Net profit declined by 2.9% YoY dragged by accelerated depreciation of certain elements of network assets that the TM commenced from 4Q22. We remain bullish on TM’s business prospects however namely Unifi, TM One and TM Wholesale divisions. With positive development of 5G in Malaysia we foresee more stable earnings growth in the long run backed by the enhancement of 5G related products. Maintain a BUY call on TM with a TP of RM7.58 based on DCF-derived (WACC:7.4%, g:1%).

• Within expectations. 1Q23 net profit of RM330mn (QoQ: >100%, YoY: - 2.9%) was in line with our and consensus expectations accounting 28.4% and 25.4% of full year forecast respectively.

• Dividend. No dividend declared in the current quarter.

• QoQ. TM’s 1Q23 revenue slightly down by 0.9% QoQ hampered by lower revenue from all services except Internet. Meanwhile, TM’s earnings jumped by >100% QoQ due to lower effective tax rate from recognition of deferred tax credits.

• YoY/ YTD. Top-line increased by 2.0% YoY supported mainly by Internet and other telecommunication related services. However, bottom-line decreased by 2.9% YoY due to accelerated depreciation of certain elements of network assets that the Group commenced from 4Q22. This underpinned depreciation charges that were up by 28.6% YoY in 1Q23. Segment-wise, Unifi topline grew by 4.3% YoY to RM59.7mn primarily attributed to the expansion of the Internet sector, with cumulative fixed internet subscribers growing by 8.1%. The number of subscribers reached close to 3.1mn in the current quarter (versus 2.8mn in 1Q22). TM One however experienced a decline in topline or by 6.7% to RM51.8mn dragged by the impact of price reductions on large contracts and a decrease in revenue resulting from one-off realizations of customer projects.

• Outlook. We remain bullish on TM’s business prospects namely Unifi, TM One and TM Wholesale divisions. In regards to 5G development, TM guided that the group plans to actively engage and collaborate with respect to Dual Network Implementation Task Force. The objective is to ensure the achievement of 80% Completion of Phase 1 (CoPA) and facilitate a seamless transition to dual networks. With positive development of 5G network in Malaysia we foresee more stable earnings growth in the long run backed by the enhancement of 5G related products. TM Wholesale will remain as the beneficiary of 4G and 5G network infrastructure development by Digital Nasional Berhad (DNB) thanks to TM’s extensive network infrastructure nationwide. Downside risk to our call includes stiff competition from other service providers in terms of pricing and network stability.

• Forecast: Unchanged

• Our call. Maintain a BUY call on TM with a TP of RM7.58 based on DCFderived (WACC:7.4%, g:1%)

Source: BIMB Securities Research - 26 May 2023