TM’s 1Q22 bottom line of RM349m (+39% QoQ, +5% YoY) matched expectations. The sequential improvement was mainly due to leaner cost structure, lower tax rate and finance cost after the early redemption of RM2bn sukuk. Unifi added 134k subs more than sufficient to offset Streamyx’s attrition of 64k. TM is on track to achieve FY22 guidance which implies growth on the back of prudent CAPEX. Reiterate BUY on the back of lower DCF-derived TP of RM7.23. 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. 1Q22 core net profit of RM349m (+39% QoQ, +5% YoY) accounted for 31% and 32% of our and consensus full year estimates, respectively. This is deemed in line as 1H is a stronger half historically (1Q21 accounted for 29% of FY21’s core net profit). 1Q22 core earnings was arrived after adjusting for forex gain on international trade settlement (-RM15m) and prosperity tax (+RM24m).

Dividend. None (1Q22: none). TM traditionally distributes dividend on a semi-annual basis.

QoQ. Top line fell 8% as the declines in Others (-29%), Data (-11%) and Voice (-2%) were more than sufficient to offset the expansions in Internet (+3%). However, core net profit gained by 39% thanks to efficiency excellence (EBITDA margin +3.9ppt), lower finance cost (-23%) and lower effective corporate tax rate.

YoY. Sales strengthened by 3% as the gains in Internet (+11%) and Voice (+5%) were partly neutralized by Data (-1%) and Others (-9%). Post adjustment, core earnings improved 5% attributable to lower finance cost (-44%) after the early redemption of RM2bn sukuk.

unifi and Streamyx. 134k new unifi subs in 1Q22 and lifted total base to 2.6m but at the expense of ARPU which was eroded by RM5 QoQ to RM136. Copper broadband quarterly churn was 64k subs QoQ and ended the quarter with 214k subs. At the same time, ARPU trended slightly higher at RM95 (+RM2 QoQ).

FY22 guidance. On track to achieve (1) Revenue growth: low to mid-single digit growth; (2) EBIT: more than RM1.8bn; and (3) Capex: 14%-18% of revenue.

Forecast. Updated our model based on FY21 audited account. As a result, FY22-23 earnings projection are adjusted by -0.4% and +0.2%, respectively. We also introduce FY24 projections.

Reiterate BUY on the back of lower DCF-derived TP of RM7.23 (previously RM7.26) 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 May 2022