Results

• Steady earnings– TM’s 1Q22 PATAMI grew 4.4% YoY to RM340m due to lower finance cost (-44% YoY to RM96m).

• Higher revenue – 1Q22 revenue rose 2.9% YoY to RM2.89b led as growth in Voice (+5% YoY to RM584m) and Internet (+10.6% to RM1.08b) segments cushioned the decline in Data (- 0.6% to RM795m) and Others (-9.2% to RM436m).

• Improved QoQ earnings – TM’s 1Q22 PATAMI of RM340m surged 325% QoQ mainly due to the absence of the RM122m impairment related to floods in 4Q21. Quarterly revenue declined 8.3% QoQ to RM2.89b) as revenue growth from Internet (+2.6% QoQ) was overshadowed by declines in Voice (-2% QoQ), Data (-11% QoQ) and Others (-29% QoQ).

• Record high unifi subscribers – Total broadband subscribers increased 16.6% YoY and 2.5% QoQ to 2.85m as UniFi subscribers grew 35% YoY and 5.4% QoQ to a record 2.64m to cushion the decline in Streamyx subs which decreased 57% YoY and 23% QoQ to 214k.

• Mixed ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband was higher QoQ at RM95 vs RM93 in 4Q21 while ARPU for UniFi dropped to RM136 vs RM141 in 4Q21.

• Stable gearing – Net debt/EBITDA increased slightly to 1.19x (from 1.14x in 4Q21) while free cash flow stands at RM659m.

Earnings Outlook/Revision

• Within expectation – 1Q22 PATAMI achieved 31% of our full year estimate while quarterly revenue accounted for 25% of our FY22 forecast.  Estimates maintained – We are keeping our revenue and earnings forecasts for FY22 and FY23.

• Management guidance – Telekom’s management maintained its 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% to 18%.

• Key beneficiary – We are positive on the stock as TM is a key beneficiary of JENDELA and DNB 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 RM6.34. The fair value is based on DCF with assumption of 0.5% terminal growth and 8.5% discount rate.

Source: JF Apex Securities Research - 26 May 2022