Results

Steady earnings – TM’s 3Q21 reported net profit dropped 18% YoY to RM271.3m. Excluding forex losses and provisions under the Goup’s manpower optimisation initiatives, normalized PATAMI rose 5.3% YoY to RM304.3m.

Higher revenue – 3Q21 revenue rose 4.2% YoY to RM2.8b due to YoY growth in all business segments: Voice (+0.3% to RM636m), Data (+0.1% to RM717m), Internet (+8.4% to RM1.02b and Others (+7.7% to RM433m).

Better QoQ earnings – TM’s normalised PATAMI of RM304m grew 19% QoQ due to lower finance cost and lower depreciation. This came on the back of higher revenue (+1% QoQ to RM2.8b). Revenue from Data (-4% QoQ) and Others (- 0.9% QoQ) declined while Internet (+2.3% QoQ) and Voice (+9% QoQ) posted growth.

Record high unifi subscribers – Total broadband subscribers increased 19% YoY and 5% QoQ to 2.69m as UniFi subscribers grew 42% YoY and 10% QoQ to a record 2.35m to cushion the decline in Streamyx subs which decreased 45% YoY and 18% QoQ to 0.34m.

Stable ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband was stable QoQ at RM92 vs RM91 in 2Q21 while ARPU for UniFi declined to RM138 vs RM141 in 1Q21.

Lower gearing – Net debt/EBITDA was flat at 1.31x (from 1.44x in 2Q21) while free cash flow stands at RM1.87b.

Earnings Outlook/Revision

Within expectation – 9M21 normalized PATAMI (+12% YoY to RM890.7m) achieved 79% of our full year estimate while nine months’ revenue (+7% YoY to RM8.38b) accounted for 77% of our FY21 forecast.

Estimates maintained – We are keeping our forecasts for FY21. Earnings momentum will be sustained by strong demand for broadband and ongoing cost optimisation.

Management upgraded guidance – Telekom’s management has revised upwards its 2021 guidance of revenue growth (from “flat to low single digit growth” to “low to mid-single digit growth”) and EBIT (from over RM1.6b to between RM1.7b and RM1.8b). Capex/revenue guidance remains at 14% to 18%.

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.

Source: JF Apex Securities Research - 26 Nov 2021