Results

• Stellar earnings – TM’s 1Q21 reported net profit more than doubled YoY to RM325.5m while normalized PATAMI surged 38% YoY to RM331.5m due to lower operating costs which saw EBITDA margin lifted to 40% from 36% a year ago.

• Revenue grew – 1Q21 revenue rose 10% YoY to RM2.8b due YoY growth in all business segments: Voice (+2.2% to RM556m), Data (+26% to RM800m), Internet (+4% to RM974m and Others (+9% to RM480m).

• Higher QoQ earnings – TM’s normalised PATAMI of RM331.5m surged 71% QoQ despite lower revenue (-6% QoQ to RM2.8b) as operating costs declined. Revenue from Voice (-10% QoQ) and Other (-26% QoQ) declined while Internet (+2.6% QoQ) and Data (+1.7% QoQ) posted growth. Direct cost decreased 23% QoQ to RM687m while other opex dropped 36% QoQ to RM313m.

• Subscriber growth momentum – Total broadband subscribers increased 12% YoY and 5% QoQ to 2.44m as UniFi subscribers grew 31% YoY and 10% QoQ to 1.95m to cushion the decline in Streamyx subs which decreased 29% YoY and 12% QoQ to 0.49m.

• Stable ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband declined was stable QoQ at RM91 vs RM92 in 4Q20 while ARPU for UniFi declined to RM144 vs RM153 in 4Q20.

• Steady gearing – Net debt/EBITDA was flat at 1.42x (from 1.41x in 4Q20) while cash reserves declined to RM1.84b vs RM4.15b in 4Q20 following early redemption of RM2b sukuk.

Earnings Outlook/Revision

• Above expectation – 1Q21 normalized PATAMI achieved 29% of our full year estimate three months’ revenue accounted for 26% of our FY21 forecast.

• Estimates maintained – We are keeping our forecasts for FY21 with caution of potential negative impact of the latest MCO. Earnings momentum will be sustained by strong demand for fixed broadband and ongoing cost optimisation.

• Key beneficiary – TM is a key beneficiary of MyDIGITAL given its infrastructure of fibre network and submarine cables as well demand for data centres and 5G rollout.

Valuation & Recommendation

• Upgrade to BUY from HOLD with an unchanged target price of RM6.64 due to the recent selldown in share price which sees its values re-emerge. The fair value is based on DCF with assumption of 1.5% terminal growth and 9% discount rate.

Source: JF Apex Securities Research - 28 May 2021