TM’s 9M21 core PATAMI of RM891m (+12% YoY) matched expectations. All products recorded higher contribution in 9M21 and bottom line improved thanks to lower finance expense. Unifi recorded another record-breaking quarterly net adds of 208k, more than sufficient to offset Streamyx’s attrition. Management raised FY21 guidance which implies growth on the back of prudent CAPEX. Reiterate BUY on the back of unchanged DCF-derived TP of RM7.93. Leveraging on its extensive fibre reach, TM is perceived to be the critical fundamental building block of government’s 5G rollout under MyDigital.

Within expectations. 3Q21 core net profit of RM304m (+19% QoQ, +5% YoY) brought 9M21 sum to RM891m (+12% YoY) which matched our and consensus estimates at 80% and 78%, respectively. Historically, 4Q is a softer quarter (9M20 core net profit accounted for 80% of FY20’s). 9M21 core earnings was arrived after excluding forex loss which amounted to RM75m.

Dividend. None (3Q20: none). YTD DPS amounted to 7.0 sen (9M20: 6.8 sen).

QoQ. Top line gained by 2% as the expansions in Voice (+9%) and Internet (+2%) were more than sufficient to offset the declines in Data (-4%) and Others (-1%). In turn, core net profit rose 19% aided by lower finance cost (-15%) and tax rate of 23.2% (2Q21: 26%).

YoY. Sales strengthened by 4% as all products recorded commendable growths, led by Internet (+8.4%), followed by Others (+7.7%), Voice (+0.3%) and Data (+0.1%). Post adjustment, core earnings improved 5% thanks to lower finance expanse.

YTD. Turnover grew 7% supported by higher contributions from all products: Voice (+2%), Internet (+7%), Data (+10%) and Others (+9%). In turn, core PATAMI was boosted by 8% thanks to lower finance expense.

unifi and Streamyx. 208k new unifi subs in 3Q21, back-to-back record high quarterly net-add, lifted total base to 2.3m while ARPU was lower at RM138 (-RM3 QoQ). Copper broadband quarterly churn was 74k subs QoQ and ended the quarter with 342k subs. At the same time, ARPU trended slightly higher at RM92.

FY21 guidance. Revise (1) Revenue growth: low to mid (previously flat to single) single digit growth; (2) EBIT: RM1.7-1.8bn (previously >RM1.6bn); and (3) Capex: 14%-18% of revenue.

Forecast. Unchanged as results were in line.

Reiterate BUY call on the back of unchanged DCF-derived TP of RM7.93 with WACC of 7.7% and TG of 0.8%. We are particularly positive on its cost optimization measures which is now yielding an impactful outcome. Leveraging on its extensive fibre reach, TM is perceived to be the critical fundamental building block of government’s 5G rollout under MyDigital initiative. Furthermore, TM is well positioned as the sole Malaysian Cloud Service Provider when sovereignty is the utmost important in dealing with government’s data.

Source: Hong Leong Investment Bank Research - 26 Nov 2021