Results

• Earnings dragged by flood – TM’s 4Q21 reported net profit dropped 69% YoY to RM79.9m while normalized PATAMI decreased 34% YoY to RM128.6m due to higher operating costs of RM122m, impairment & accelerated depreciation on mobile assets as well as provision for restoration of services and network which was affected by floods at the year-end.

• Higher revenue – 4Q21 revenue rose 5.1% YoY to RM3.15b due to YoY growth in all business segments as growth in Data (+13.2% to RM891m) and Internet (+10.6% to RM1.05b) cushioned the decline in Voice (-3.4% to RM596m) and Others (- 4.9% to RM616m)

• Lower QoQ earnings – TM’s normalised PATAMI of RM129m dropped 58% QoQ due to higher costs related to flood. This came on the back of higher revenue (+12% QoQ to RM3.15b). Revenue from Voice (-6.3% QoQ) declined while Internet (+3.2% QoQ) Data (+24% QoQ) and Others (+42% 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 RM93 vs RM92 in 3Q21 while ARPU for UniFi climbed to RM141 vs RM138 in 3Q21.

• Lower gearing – Net debt/EBITDA improved to 1.14x (from 1.31x in 3Q21) while free cash flow stands at RM2.2b vs RM1.87b in the previous quarter.

Earnings Outlook/Revision

• Below expectation – FY21 normalized PATAMI (+2% YoY to RM1.02b) achieved 90% of our full year estimate while twelve months’ revenue (+6% YoY to RM11.5b) accounted for 105% of our FY21 forecast.

• Estimates adjusted – We are lifting our revenue forecasts for FY22 and FY23 by 5.3% and 5.2% respectively in view of the reopening of economy. However, we are slashing our FY22 and FY23 EPS estimates by 12% and 5% respectively to account for higher depreciation and taxation.

• Management guidance – Telekom’s management revealed their 2022 guidance of: a) revenue growth of “low to mid-single digit growth”, b) EBIT of over RM1.8b and c) Capex/revenue between 14% and 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 a lower target price of RM6.34 (previously RM6.64). The fair value is based on DCF with assumption of 0.5% terminal growth and 8.5% discount rate.

Source: JF Apex Securities Research - 28 Feb 2022