Results

• Declined earnings – TM’s 2Q21 reported net profit dropped 21% YoY to RM218.5m while normalized PATAMI declined 4.7% YoY to RM255m due to higher other opex by RM108m which included provisions under the group’s manpower optimisation initiatives.

• Steady revenue – 2Q21 revenue rose 6.6% YoY to RM2.76b due to YoY growth in all business segments: Voice (+2.1% to RM584m), Data (+6.1% to RM747m), Internet (+7.9% to RM994m and Others (+10.6% to RM437m).

• Lower QoQ earnings – TM’s normalised PATAMI of RM255m dropped 23% QoQ amid lower revenue (-1.7% QoQ to RM2.76b) as total costs increased 7.8% QoQ. Revenue from Data (-6.6% QoQ) and Others (-9% QoQ) declined while Internet (+2.1% QoQ) and Voice (+5% QoQ) posted growth.

• Subscriber growth momentum – Total broadband subscribers increased 12% YoY and 5% QoQ to 2.56m as UniFi subscribers grew 38% YoY and 10% QoQ to 2.14m to cushion the decline in Streamyx subs which decreased 39% YoY and 15% QoQ to 0.42m.

• Lower ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband was stable QoQ at RM91 while ARPU for UniFi declined to RM141 vs RM144 in 1Q21.

• Steady gearing – Net debt/EBITDA was flat at 1.44x (from 1.42x in 1Q21) while cash reserves was stable at RM1.82b vs RM1.84b in 1Q21.

Earnings Outlook/Revision

• Within expectation – 1H21 normalized PATAMI achieved 52% of our full year estimate six months’ revenue accounted for 51% of our FY21 forecast.

• Estimates maintained – We are keeping our forecasts for FY21 as we view the provision for manpower optimisation as one-off. Earnings momentum will be sustained by strong demand for fixed broadband and ongoing cost optimisation.

• Key beneficiary – We are positive on the stock as TM is a key beneficiary of JENDELA plan given its infrastructure of fibre network and submarine cables as well demand for data centres and 5G rollout.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM6.64. The fair value is based on DCF with assumption of 1.5% terminal growth and 9% discount rate.

• Dividend – TM has announced an interim dividend of 7 sen and we expect full year dividend to be 15 sen or 2.5% yield.

Source: JF Apex Securities Research - 30 Aug 2021