TM’s FY22 bottom line of RM1.5bn (+30% YoY) exceeded expectations. FY22 top line expanded by 5% driven by all product segments: Voice (+1%), Internet (+8%), Data (+7%) and Others (+1%). Unifi added 87k subscribers more than sufficient to offset Streamyx’s attrition of 31k. Reiterate BUY on the back of higher DCF derived TP of RM6.98. 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.

Beat expectations. 4Q22 core net profit of RM521m (+86% QoQ, +108% YoY) lifted FY22’s to RM1.5bn (+30% YoY) which exceeded expectations, accounting for 113% and 115% of our and street full year estimates, respectively. The outperformance was mainly due to stronger-than-expected EBITDA margin. FY22 core earnings was arrived after adjusting for forex gain on international trade settlement (-RM8m), Prosperity Tax (+RM65m) and accelerated depreciation (RM283m).

Dividend. Declared final interim single-tier cash DPS of 7.5 sen (4Q21: 6.0 sen) which goes ex on 15 Mar. FY21 DPS amounted to 16.5 sen (FY20: 13.0 sen).

QoQ. Top line lost 6% driven by declines in Others (-10%), Data (-10%) and Voice (-8%), more than sufficient to offset the gain in Internet (+2%). However, core net profit was higher by 86% mainly due to lower total operating cost mainly from direct cost (-35%).

YoY. Sales contracted by 6% dragged by Voice (-5%), Data (-9%) and Others (-20%), more than sufficient to neutralize the strength in Internet (+6%). However, core earnings was higher by 108% thanks to (i) higher EBITDA margin; and (ii) lower effective corporate tax rate.

YTD. Top and bottom lines expanded by 5% and 30%, respectively. Sales growth breakdown: Voice (+1%), Internet (+8%), Data (+7%) and Others (+1%).

unifi and Streamyx. 87k new unifi subs in 4Q22 and lifted total base to 3m while ARPU was stable at RM132. Copper broadband quarterly churn was 31k subs QoQ and ended the quarter with 75k subs. At the same time, ARPU trended higher at RM113 (+RM3 QoQ).

Forecast. After tweaking model based on the deviation mentioned above, FY23-24 earnings projection was lifted by 6% and 5%, respectively.

Reiterate BUY with a higher DCF-derived TP of RM6.98 with WACC of 8.7% (previously 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 - 1 Mar 2023