Results

• Higher Earnings – TM’s 4Q22 PATAMI doubled YoY to RM160.2m  mainly due to forex gain on borrowings of RM66.6m, lower finance cost and lower taxation. 

• Lower revenue – 4Q22 revenue dropped 5.5% YoY to RM2.98b following as growth in Internet revenue (+5.5% to RM1.1b) was unable to absorb the decline in Voice (-4.7% to RM567.6m), Data (- 9% to RM809.4m) and Others (-20% to RM492.8m).

• Declined QoQ earnings – TM’s 4Q22 PATAMI of RM160.2m declined  40% QoQ mainly due to operational cost (+64% QoQ) and higher depreciation and amortization (+50% QoQ). Quarterly revenue declined 5.7% QoQ to RM2.98b as revenue from all segments decreased except for Internet.

• Record high unifi subscribers – Total broadband subscribers increased 9% YoY and 2% QoQ to 3.037m as UniFi subscribers grew  18% YoY and 3% QoQ to a record 2.962m to cushion the decline in  Streamyx subs which decreased 73% YoY and 29% QoQ to 75k. 

• Mixed ARPUs – TM’s Average Revenue Per User (ARPU) for  Streamyx broadband was higher QoQ at RM113 vs RM100 in 3Q22  while ARPU for UniFi was flat at RM132.

• Better gearing – Net debt/EBITDA was lower at 0.94x vs 1.09x in  3Q22 while free cash flow climbed to RM2.02b vs RM1.91b in 3Q22.

Earnings Outlook/Revision 

• Below expectation – 2022 PATAMI achieved 85% and 88% of our/consensus’ full year estimate while quarterly revenue met our and consensus’ expectations. 

• 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. We expect the recent revision of Mandatory Standard on  Access Pricing (MSAP) to have minor impact on Telekom’s earnings given its dominant position. We are lowering our EPS forecast for  FY23 by 6.4% while raising our revenue estimate by 2.8% given the subscriber growth momentum. 

Valuation & Recommendation

• Maintain BUY with a lower target price of RM6.31 (previously  RM6.55). The fair value is based on DCF with assumption of 0.5%  terminal growth and 10% discount rate.

• Risks: a) higher than expected operational costs, b) price  competition, c) regulatory risks  

Source: JF Apex Securities Research - 1 Mar 2023