TM’s 2QFY21 CNP of RM255m brought 1HFY21 CNP to RM586m, within our expectation at 51% of FY21E CNP. 2QFY21 DPS of 7.0 sen is as expected. In 2Q, unifi subs grew an impressive 10% QoQ for the second consecutive quarter, surpassing 2m subs. Moving forward, we expect the strong Unifi subs growth to continue, driven by expansion in coverage and continued demand for home fibre. As lockdowns ease, we expect enterprise revenues to recover. Overall, TM’s 2QFY21 was as expected, thus we maintain our estimates, OP call and DCF-TP of RM7.00, implying EV / FY22 EBITDA of 6.6x.

1HFY21 within estimates. 2QFY21 CNP of RM255m brought 1HFY21 CNP to RM586m, within our/street’s expectations at 51%/52%. 2QFY21 DPS of 7.0 sen brought 1HFY21 DPS to 7.0 sen, in-line with forecast of 16.5 sen for FY21.

YoY, 1HFY21 revenue rose by 8% driven by growth across all three products lines. Voice inched up 2%, while Internet rose 6%, boosted by unifi subs growth, and Data jumped 16% on higher IRU contribution in 1QFY21. Continued cost savings lifted both EBITDA and CNP up by 15%.

QoQ, 2QFY21 revenue dipped by 2%, as 1QFY21 saw a lumpy IRU revenue recognition. However, voice and internet revenues rose by 5% and 2%, respectively. OPEX rose 9% on VSS payments (likely to sustain into 2HFY21) and other expenses, which we have gathered from management to be one off from nature. EBITDA fell by 15% and a higher effective tax rate weighed, bringing CNP down by 23%.

Impressive Unifi subs growth. 2QFY21 Unifi subs grew 10% QoQ. While faster than our estimate of 8%, Streamyx subs declined faster than we anticipated. All in, fixed subs rose 5% as we anticipated. During the quarter, TM achieved more than 2m cumulative Unifi subscribers, impressive given that since achieving 1m Unifi subs in 2Q17, it took TM three years to add 500k unifi subs (2Q20: 1.55m subs), and only one year to add 500k more (2Q21: 2.1m subs).

Moving forward, we continue to expect strong Unifi subs growth in the coming quarters, driven by: (i) TM’s continued coverage expansion, and (ii) strong demand for home fibre. While we expect continued Unifi ARPU erosion, we believe continued subs growth will outweigh the ARPU erosion, and positively contribute to Unifi revenue. Additionally, once lockdowns are lifted, we expect enterprise revenues to pick up as TM resumes deliveries onto enterprise customer premises, which was not allowed during lockdowns. While discussions between TM and the government to move the public sector data onto TM’s cloud are still ongoing, we believe that revenue contribution will commence in FY22.

Post results, we maintain our FY21 and FY22 estimates.

Reiterate OUTPERFORM with DCF-TP of RM7.00. Our TP implies an EV/FY22 EBITDA of 6.6x, close to +0.5SD of its 5-year mean, which we think is justified given the tailwinds behind TM’s numerous business segments. The current share price implies EV/FY22 EBITDA of 5.9x, close to -0.5SD of its 5-year mean, undervaluing TM, in our view.

Risks to our call include: (i) weaker-than-expected data and internet revenue, (ii) stronger-than-expected OPEX, and (iii) stiffer competition.

Source: Kenanga Research - 30 Aug 2021