TM’s 1H22 bottom line of RM684m (+17% YoY) exceeded expectations. The sequential improvement was mainly due to leaner cost structure which led to higher-than-expected EBITDA margin. Unifi added 125k subs more than sufficient to offset Streamyx’s attrition of 57k. 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 RM6.94. Leveraging on its extensive fibre reach, TM is perceived to be the critical fundamental building block of government’s 5G rollout under MyDigital.

Above expectations. 2Q22 core net profit of RM335m (-4% QoQ, +31% YoY) lifted 1H22’s to RM684m (+17%), which accounted for 61% of our and street full year estimates. The outperformance was attributable to effective cost discipline which led to higher-than-expected EBITDA margin. 1H22 core earnings was arrived after adjusting for forex gain on international trade settlement (-RM58m) and prosperity tax (+RM24m).

Dividend. Declared an interim single-tier DPS of 9 sen (2Q21: 7 sen) and the book closure date will be announced at a later date. 1H22 DPS amounted to 9 sen (1H21: 7 sen).

QoQ. Top line gained 7% as all products registered positive growth: Voice (+7%), Internet (+1%), Data (+10%) and Others (+15%). However, core net profit was lower by 4% mainly due to higher D&A (+3%) and corporate tax rate of 30% (1Q21: 27%).

YoY. Sales strengthened by 12% contributed by all products: Voice (+7%), Internet (+10%), Data (+17%) and Others (+14%). Despite the higher D&A (+5%), core earnings improved 31% thanks to improved cost structure (EBITDA margin +8.4ppt).

YTD. For the same explanation above, top and bottom lines expanded by 7% and 17%, respectively. Sales growth breakdown: Voice (+6%), Internet (+10%), Data (+8%) and Others (+2%

unifi and Streamyx. 125k new unifi subs in 2Q22 and lifted total base to 2.8m while ARPU also experienced positive development of +RM1 QoQ to RM137. Copper broadband quarterly churn was 57k subs QoQ and ended the quarter with 257k subs. At the same time, ARPU trended slightly higher at RM97 (+RM2 QoQ).

Forecast. Based on the deviations mentioned above, we tweak our cost assumptions and FY22-24 earnings forecasts were lifted by 16%, 11% and 12%, respectively.

Reiterate BUY with lower DCF-derived TP of RM6.94 (from RM7.23) after adjusting WACC from 7.7% to 8.0% (as we tweak risk-free rate and beta in view of the rate hike situation) and TG of from 0.8% to 1.0%. 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 - 25 Aug 2022