Results

• Slightly lower earnings – TM’s 1Q23 PATAMI slipped 3% YoY to RM330.1m due to higher operational costs (+20.3% YoY) and depreciation & amortization (+28.6% YoY).

• Flat revenue – 1Q23 revenue added 2% YoY to RM2.95b following as growth in Internet revenue (+5.9% to RM1.14b) cushioned the decline in Voice (-2.7% to RM568m), and Data (-3.5% to RM766m).

• QoQ earnings recovered – TM’s 1Q23 PATAMI doubled QoQ due to lower operational cost (-33% QoQ) and lower depreciation and amortization (-21% QoQ). Quarterly revenue declined 1% QoQ due to lower contribution from Data and Others.

• Stable margins – EBITDA and PATAMI margins are stable at 42% and 11% against 40% and 12% in 4Q22 respectively.

• Record high unifi subscribers – Total broadband subscribers increased 8.1% YoY and 1.4% QoQ to 3.08m as UniFi subscribers grew 14.7% YoY and 2.1% QoQ to a cross the 3 million mark while cushioning the decline in Streamyx subs by 73% YoY and 24% QoQ to 57k.

• Mixed ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband was lower QoQ at RM108 vs RM113 in 4Q22 while ARPU for UniFi was flat at RM132.

• Steady gearing – Net debt/EBITDA was slightly higher at 0.95x vs 0.94x in 4Q22.

Earnings Outlook/Revision

• Within expectation – 1Q23 PATAMI achieved 24.5%/25.2% of our/consensus’ full year estimate while quarterly revenue accounted for 24%/24% 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.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM6.31. 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 - 26 May 2023