Results

• Surprise earnings– TM’s 2Q22 PATAMI grew 73% YoY to RM378m due to lower manpower cost (-11% YoY to RM617.4m) and higher revenue.

• Higher revenue – 2Q22 revenue rose 11.8% YoY to RM3.09b led as growth business segments (Voice, Internet, Data and Others) posted revenue growth. The commendable performance was due to higher fibre broadband subscribers, higher demand for data and higher business solutions and ICT services and higher infra sharing from its wholesale customers.

• Improved QoQ earnings – TM’s 2Q22 PATAMI of RM378m surged 11% QoQ mainly lower manpower cost (-13.7% QoQ). Quarterly revenue rose 6.8% QoQ to RM3.09b as revenue all segments grew.

• Record high unifi subscribers – Total broadband subscribers increased 14% YoY and 2.5% QoQ to 2.917m as UniFi subscribers grew 29% YoY and 4.7% QoQ to a record 2.76m to cushion the decline in Streamyx subs which decreased 62% YoY and 27% QoQ to 157k.

• Higher ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband was higher QoQ at RM97 vs RM95 in 1Q22 while ARPU for UniFi edged higher to RM137 vs RM136 in 1Q22.

• Stable gearing – Net debt/EBITDA was flat at 1.18x vs 1.19x in 1Q22 while free cash flow stands at RM1.39b vs RM659m in 1Q22.

• Dividend – TM declared an interim dividend of 9 sen/per share. We expect full year dividend of 18 sen which translates into a yield of 3%.

Earnings Outlook/Revision

• Above expectation – 1H22 PATAMI achieved 65% of our full year estimate while quarterly revenue was within expectation after accounting for 51% of our FY22 forecast.

• Estimates lifted – We are raising our EPS forecasts for FY22 and FY23 by 22% and 15% respectively. Meanwhile, revenue forecast for FY22 is unchanged while FY23 revenue estimated is lifted by 9%.

• 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 a higher target price of RM6.55 (previously RM6.34). The fair value is based on DCF with assumption of 0.5% terminal growth and 9.4% discount rate.

Source: JF Apex Securities Research - 25 Aug 2022