Results

• Earnings lifted by tax reversal – TM’s 2Q23 PATAMI surged 50% YoY to RM568.7m mainly due to tax reversal of RM82.6m from unutilized tax losses and lower finance costs.

• Flat YoY revenue – 2Q23 revenue was flat at RM3.1b due to slower revenue growth from Unifi.

• Higher QoQ – On a QoQ basis, TM’s 2Q23 PATAMI surged 72% QoQ mainly due to the tax reversal. Quarterly revenue added 5% YoY to RM3.01b mainly due to higher international revenue by TM Global (+25% YoY to RM814m).

• Stable margins – EBITDA margin was slightly lower at 41% vs 42% in 1Q23 due to higher direct (+20% QoQ to RM809m) and operational (+12% QoQ to RM471m) costs.

• Record high unifi subscribers – TM extended its record high unifi subscribers by 1.3% QoQ and 10.9% YoY to 3.06m while Streamyx subscribers dropped 19% QoQ and 70.7% YoY to 46k. As a result, total broadband subscribers grew 0.9% QoQ and 6.5% to 3.107m.

• Lower ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband was lower QoQ at RM106 vs RM108 in 1Q23 while ARPU for UniFi declined slightly to RM130 from RM132 in 1Q23.

• Steady gearing – Net debt/EBITDA was slightly higher at 0.99x vs 0.95x in 1Q23. The company declared an interim dividend of 9.5 sen. We expect full year dividend of 19.4 sen (3.8% yield).

Earnings Outlook/Revision

• Above expectation – 1H23 PATAMI achieved 66.7%/68.1% of our/consensus’ full year estimate while six months’ revenue accounted for 49%/49.3% our and consensus’ expectations. However, we are keeping our forecasts intact in anticipation of slower earnings in 2H23 as the management has guided higher manpower costs due to VSS. The management introduced its 2023 guidance of flat revenue, EBIT of RM1.8b-RM2.0b and capex/revenue of 18%-20%.

• 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% WACC.

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

Source: JF Apex Securities Research - 28 Aug 2023