TM’s 9M22 bottom line of RM963m (+8% YoY) matched expectations. Unifi added 115k subscribers more than sufficient to offset Streamyx’s attrition of 51k. FY22 guidance was upgraded with revenue growth of mid to high single digit along with an EBIT of more than RM2.3bn. Reiterate BUY on the back of unchanged 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 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.

Within expectations. 3Q22 core net profit of RM280m (-16% QoQ, -8% YoY) lifted 9M22’s to RM963m (+8% YoY) which matched expectations, accounting for 73% and 77% of our and street full year estimates, respectively. 9M22 core earnings was arrived after adjusting for forex gain on international trade settlement (-RM85m) and Prosperity Tax (+RM65m).

Dividend. None (3Q21: none). 9M22 DPS amounted to 9 sen (9M21: 7 sen).

QoQ. Top line gained 2% driven by Others (+10%) and Data (+3%), more than sufficient to offset the contractions in Voice (-1%), while Internet was rather flat. However, core net profit was lower by 16% mainly due to higher (i) total operating cost mainly from direct cost (+20%); (ii) higher D&A (+5%); and (iii) effective corporate tax rate (net of Prosperity Tax) of 33% (vs 2Q22: 30%).

YoY. Sales strengthened by 13% contributed by Internet (+7%), Data (+26%) and Others (+27%), more than sufficient to neutralize the weakness in Voice (-3%). However, core earnings was lower by 8% impacted by higher (i) D&A (+11%); and (ii) effective corporate tax rate (3Q21: 23%).

YTD. Top and bottom lines expanded by 9% and 8%, respectively. Sales growth breakdown: Voice (+3%), Internet (+9%), Data (+14%) and Others (+10%).

unifi and Streamyx. 115k new unifi subs in 3Q22 and lifted total base to 3m at the expense of ARPU which was eroded by RM5 QoQ to RM132. Copper broadband quarterly churn was 51k subs QoQ and ended the quarter with 106k subs. At the same time, ARPU trended higher at RM100 (+RM3 QoQ).

FY22 guidance raised. (i) Revenue growth: mid to high single digit (previously low to mid-single digit); (ii) EBIT: more than RM2.3bn (previously more than RM1.8bn); and (iii) Capex: 14%-18% of revenue.

Forecast. Unchanged.

Reiterate BUY with unchanged DCF-derived TP of RM6.94 with WACC of 8.0% and TG of 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 - 23 Nov 2022